FN240 Ch. 4
Suppose you want to save $10,000 to buy a car. You have $6,000 to deposit today and you can earn 6% on your investments. You want to know when you'll have enough to buy the car. Which of the following spreadsheet functions will solve the problem?
=NPER(0.06,0,−6000,10000)
Which formula will you enter into a spreadsheet cell to determine how long it will take $40 to grow to $240 at an interest rate of 6.53% compounded annually?
=NPER(0.0653,0,−40,240)
Which formula below represents a present value factor? A) (1 + r)/t B) 1/(1 + r)^t C) 1/N + 1/r D) 1/(1 + N)^r
B
Future value is the ________ value of an investment at some time in the future.
Cash
The process of leaving your money and any accumulated interest in an investment for more than one period, thereby reinvesting the interest, is called ________
Compounding
If you want to know how much you need to invest today at 12 percent compounded annually in order to have $4,000 in five years, you will need to find a(n) _______ value.
present
The ________ value is the current value of future cash flows discounted at the appropriate discount rate.
present
The discount rate is also called the rate of
return
Interest earned only on the original principal amount invested is called __________ interest.
simple
When the future value formula is used to calculate growth rates, the assumption is that _____ growth rate is achieved each year.
the same
What is the future value of $100 compounded for 50 years at 10 percent annual interest?
$11,739.09
If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?
$133.10 (100*1.1^3)
You invest $500 at 10 percent interest. At the end of 2 years with simple interest you will have ____ and with compound interest you will have ____.
$600; $605
Suppose present value is $100, future value is $1,000, and N is 10 years. Which formula below is used to find the (decimal) interest rate?
(1000/100)^(1/10)-1
Which of the following is the correct mathematical formula for calculation of the future value of $100 invested today for 3 years at 10% per year?
FV = $100 × (1.10)^3
T/F The multi-period formula for future value using compounding is FV = (1 + r)t.
False
________ value is the cash value of an investment at some time in the ________
Future; future
What are the two major forms of long-term debt?
Public issue and privately placed
Interest earned on the original principal amount invested is called _____.
Simple interest
T/F: Given the same rate of interest, more money can be earned with compound interest than with simple interest.
True
The idea behind ______ is that interest is earned on interest.
compounding
Longer-term bonds have (smaller/greater) interest rate sensitivity because a (smaller/larger) portion of a bond's value comes from the face amount.
greater; larger
The reason that interest rate risk is greater for ____ term bonds than for ____ term bonds is that the change in rates has a greater effect on the present value of the ____ than on the present value of the ____.
long; short; face value; coupon payments
The basic present value equation underlies many of the _____.
most important ideas in corporate finance
