Finance Chapter 4
FV = ________ x (1 + r)^t
PV
If you invest for a single period at an interest rate of r, your money will grow to _____ per dollar invested.
( 1 + r)
which formula below represents a present value factor?
1/(1+r)t
To calculate the future value of $100 invested for t years at r interest rate, you enter the present value in your calculator as negative number. why?
Because the $100 is an outflow from you which should be negative.
Future value is the __ value of an investment at some time in the future
Cash
Future value is the _____ value of an investment at some time in the future.
Cash
the idea behind _____ is that interest is earned on interest.
Compound
The basic present value equation is:
PV = FVt/(1 + r)^t
For a given period (t) and interest rate (r), the present value factor is ______ the future value favor.
- 1 divided by - the reciprocal
Which of the following methods are used to calculate present value?
- A time value of money table - A financial calculator - An algebraic formula
Which of the following are the primary as well as easy ways used to perform financial calculations today?
- Financial calculators - Spreadsheet functions
Using a time value of money table, what is the future value interest factor for 10 percent for 2 years?
1.21
Using a time value of money table, what is the future value interest factor for 20 percent for 2 years?
1.4400
Using the PV, discount rate, and _____, you can determine the number of periods.
FV
Using the PV, discount rate, and ______, you can determine the number of periods.
FV
True or false: the present value is the sum of all expenses in a project
False
Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r percent interest?
PV = FV/(1+r)t
True or false: Given the PV, FV, and life of the investment, you can determine the discount rate.
True
True or false: The formula for a present value factor is 1/(1 + r)^t
True
The ______ rate can be found using the PV, FV, and t.
discount
True or false: If you incest for two periods at an interest rate of r, then your money will growth (1 + r) per dollar invested.
false
When dealing with compound interest, it is more financially advantageous to have a _____ time horizon for investment.
Longer
If FV = PV X (1 + r) is the single period formula for future value, which of the following is the single period present value formula?
PV = FV/(1 + r)
What os the primary difference between time value of money data entries in your calculator and in a spreadsheet function?
The interest rate in your calculator is entered as a whole number while in the spreadsheet function it is entered as a decimal.
The real world has moved away from using ______ for calculating future and present values.
time value of money tables
Which of the following are the primary as well as easy ways used to perform financial calculations today?
- Spreadsheet functions - Financial calculator
Time value of money tables are not as common as they once were because:
- they are available for only a relatively small number of interest rates. - it is easier to use inexpensive financial calculators instead
True or false: Given the PV, FV, and payment amount, you can determine the number of periods.
False
Calculating the present value of a future cash flow to determine its worth today is commonly called _____ valuation.
discounted cash flow (DCF)
True or false: the process of leaving your money and any accumulated interest in an investment for more than one period is called multiplied interest.
false
Which of the following are the primary as well as easy ways used to perform financial calculations today?
- spreadsheet functions - financial calculator
Which of the following is the correct Excel function to calculate the present value of $300 due in 5 years at a discount rate of 10%?
=PV(0.10,5,0,-300)
The process of accumulating interest in an investment over time to earn more interest is called ______.
Compounding
Which of the following is the multi-period formula for commanding a present value into a future value?
FV = PV×(1 + r)^t
Which of the following is the multi-period formula for compounding a present value into a future value?
FV = PV×(1 + r)^t
True or false: Future value refers to the amount of money an investment is worth today.
False
The current value of a future cash flow discounted at the appropriate rate is called the _____ value
Present
With discounting, the resulting value is called the _____ value; while with compounding the result is called the ____ value.
Present ; future
True or false: When entering the interest rate in a financial calculator, you should key in the interest rate as a decimal.
false
The amount of investment is worth after one or more periods is called the _____ value.
future
Given an investment amount and a set rate of interest, the _____ the time horizon the _____ the future value.
longer ; greater
The current value of a future cash flow discounted at the appropriate rate is called the _____ value.
present
The real world has moved away from using ____ for calculating future and present values
time value of money tables
Which of the following methods are used to calculate present value?
- an algebraic formula - a time value of money table - a financial calculator
The amount of investment is worth after one or more periods is called the ____ value.
Future
The present value is the current value of the _____ cash flows discounted at the appropriate discount rate.
Future
With ____ interest, the interest in not reinvested.
simple
True or false: if you invest at a rate of r for two periods, under compounding, your investment will grow to (1 + r)^2 per dollar invested.
True
If you invest at a rate of r for ____ periods, under compounding, your investment will grow to (1 + r)^2 per dollar invested.
Two