FNAN 300 Ch. 4

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Less.

A dollar received one year from today has ___________ value than a dollar received today.

Discounted cash flow (DCF)

Calculating the present value of a future cash flow to determine its worth today is commonly called ____________ valuation.

2.5937

The correct future value interest factor in a time value of money table for finding the future value of $100 in 10 years at 10% per year interest is _____________.

$136.05

The future value of a $100 investment in 4 years compounded in 8% per year equals _____________.

Compounding

The idea behind ________ is that interest is earned on interest.

0.7835 1/(1.05)^5=0.7835

The present value interest factor for $1 at 5% compounded annually for 5 years [PVIF(5%,5)] is:

Compounding

The process of accumulating interest in an investment over time to earn more interest is called ____________.

-Financial calculator -Spreadsheet functions

Which of the following are the primary as well as easy ways used to perform financial calculations today?

$600; $605 simple interest= 500 (0.10)=$50 per year. times two years= $100 total. Adding the original principal yields $600. With compound interest, the total is $500 (1.10)^2=$605. The FV will always be higher with compound interest.

You invest $500 at 10% interest per annum. At the end of 2 years with simple interest you will have ________ and with compound interest you will have ___________.

$1.85

You must invest ________ today at 8% to $2 in one year (round your sewer to two decimal places)?

9%

Suppose the present value is $1,100, the future value is $1,200, after one year. What is the interest rate?

10% ($259.37/$100)^1/10-1=10%

Suppose we invest $100 now and receive $259.37 in 10 years. What rate of interest will we achieve?

Future

The amount an investment is worth after one or more periods is called the ___________ value.

PV=FV/(1+r)^t

The basic present value equation is:

1 divided by the reciprocal of

For a given time period (t) and interest rate (r), the present value factor is _____________ the future value factor.

False.

True or False: Future value refers to the amount of money an investment is worth today.

Cash

Future value is the ___________- value of an investment at some time in the future.

FV=100 x (1.10)^5

If you invest $100 for 5 years at 10% interest compounded annually, which of the following will be the formula for the future value of your investment?

$40.00 $500 x 8%=$40

If you invest $500 for one year at a rate of 8% per year, how much interest will you earn?

Because the $100 is an outflow from you which should be negative.

To calculate the future value of $100 invested for t years at r interest rate, you enter the present value in your calculator as a negative number. Why?

True.

True or False: The formula for a present value factor is 1/ (1+r)^t

FV= $100 x (1.10)^3

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?

A financial calculator An algebraic formula A time value of money table.

Which of the following methods are used to calculate present value?

-Today's dollar can be reinvested, yielding a greater amount in the future. -Inflation will make a dollar in the future worth less than a dollar today.

Why is a dollar received today worth more than a dollar received in the future?

1.21

Using a time value of money table, what is the future value interest factor for 10 percent for two years?

Present; future.

With discounting, the resulting value is called the __________ value; while with compounding the result is called the ___________ value.

$11,739.09 FV=$100 x 1.10 ^50 =$11,739.09

The future value of $100 compounded at 10% per year for 50 years is:

=PV (0.10, 0, -300)

Which of the following is the correct Excel function to calculate the present value of $300 due in 5 years at a discounted rate of 10%?

PV= FV/(1+r) ^t

Which of the following is the correct formula for calculating the present value of a future amount, expected in t years at r per cent interest?

longer; greater.

Given an investment amount and a set rate of interest, the ______________ the time horizon the _________ the future value.

PV=FV/(1+r)

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?

22.5 years.Which

If a firm's sales are growing at 5% per year, how long will it take for the firm's sales to triple?

0.3855 1/(1.10)^10=0.3855

If the interest rate is 10% per year and there are 10 years, what is the present value discount factor?

$133.10 FV= $100 x (1.10) ^3

If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?

(1 + r)

If you invest for a single period at an interest rate of r, your money will grow to ________ per dollar invested.

Present.

If you want to know how much you need to invest today at 12% compounded annually in order to have $4,000 in five years, you will need to find a(n) ___________ value.


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