FRL 3000 CHAPTER 5
most important ideas in corporate finance
the basic present value equation underlies many of the
True You are planning to buy a house in a few years, and would like to put money in an account today to save for a down payment.
true or false: discounting is the opposite of compounding
-1000 PV; 8 N; 6 I/Y CMPT FV 1,593.85
what is the future value of %1,000 invested for 8 years at 6%
(1+r)
If you invest for a single period at an interest rate of r, your money will grow to
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 _______ value
true
What is the future value of $100 compounded for 50 years at 10% annual interest
1000 PV; 8 N; 6 IY CPT FV = 1,586.87
What is the future value of $1000 invested for 8 years at 6%
($236.74/$100)^1/10 - 1 = 9.0%
suppose we invest $100 now and get back $236.74 in 10 years. what rate of interest will we achieve
10 I/Y; 10 N; 1000 FV; CMPT PV 0.3855
If the interest rate is 10% per year and the money is invested for 10 years, what is the present value discount factor
year 1= 110 year 2= 121 year 3= 133.10
If you invest $100 at 10 percent compounded annually, how much money will you have at the end of 3 years?
r = (1000/100)^(1/10)-1
suppose present value is $100, future value is $1000, and N is 10 years. which formula below is used to find the decimal interest rate?
cash
future value is the _______ value of an investment at some time in the future
financial calculator: -40 PV; 240 FV; 6.53 I/Y; CMPT N = 28.33
how long will it take $40 to grow to $240 at an interest rate of 6.53% compounded annually?
9.0
suppose we invest $100 now and get back $236.74 in 10 years. what rate of interest will we achieve
Investment B because the rates are the same, investment B would give a higher future value because on additional period of interest is earned.
using a time value of money table, what is the future value interest factor for 10% for 2 years
future value = FV(rate,nper,pmt,pv) discount rate = RATE(nper, pmt, pv, fv) present value = PV(rate, nper, pmt, fv)
which of the followign are correct spreadsheet functions
FALSE, small rate differences can be worth thousands of dollars, especially when either the amount or the time period is large
true or false: small changes in the interest rate affect the future value of a small-term investment more than they would affect the value of long-term investment
true, this is the present value interest factor, not the present value itself. in order to get PV, you need to multiply FV by this factor. notice how as the denominator becomes larger due to higher interest or longer periods, it reduces the factor.
true or false: the formula for a present value factor is 1/(1+r)^t
false; leave as is
true or false: when using the time value of money features of a financial calculator, you should key in the interest rate as a decimal
compounding
The idea behind ______ is that interest is earned on interest
dividend growth; sales growth
Which of the following can be deteremined using the future value approach to compound growth developed in this chapter?
10 YEAR INVESTMENT
assuming the interest rate offered for a 10 year investment plan is same as for a 4 year investment plan. for an investor to achieve the same future value, which of these two plans would require a smaller savings amount to be deposited today?
= NPER(0.06,0-6000,1000) YOU HAVE TO PUT IT IN DECIMAL FORM for excel
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?
more than
the concept of the time value of money is based on the principle that a dollar today is worth ________ a dollar promised at some time in the future
simple; bigger
the difference between _____ interest and compound interest is that the amounto f compound interest earned gets ____ every year.
FV = $100 + 10 ($100 X .10) = 200
If you invest $100 at 10 percent simple interest, how much money will you have in 10 years?
10,000 FV; 5 N, 6 IY CMPT PV = 7,462.15
If you plan to put a $10,000 down payment on a house in five years and you can earn 6% per year, how much will you need to deposit today?
