Deck 6: The Time Value of Money

Question 1

Present value (PV) refers to:

A) Worth in future of an amount invested today
B) Worth today of future payment
C) Worth in the future of a series of payments over time
D) None of the above

Answer 1

Worth today of future payment

Question 2

Compound interest method refers to:

A) Interest is calculated only on the original principle
B) Interest is calculated on a dollar received today
C) Interest is calculated on both the original principle and on all interest accumulated since the beginning of interest period.
D) All of the Above

Answer 2

Interest is calculated on both the original principle and on all interest accumulated since the beginning of interest period.

Question 3

Future Value Table is used :

A) As an alternative to calculating the future vale using the formula
B) An alternative to calculating the present value
C) An alternative to calculating the time value of money
D) B&C

Answer 3

As an alternative to calculating the future vale using the formula

Question 4

Discounting is:

A) Converting present value into its future value
B) Value today of a payment to be received
C) Calculating the future value using a formula
D) Converting future cash flows in the their present value

Question 5

Present value of an annuity refers to:

A) What series of equal payment in the future is worth today taking into account time value of money
B) A factor that when multiplied by a stream of equal payments equals present value
C) What an equal series of payments will be worth at some future date using compound interest
D) None of the Above

Question 6

Compound growth rate is calculated:

A) By loan amortization
B) Through any given interest level and time period
C) Using an ordinary annuity table
D) Using numerical data using revenues, expenses and earnings

Question 7

Future value is determined using:

A) Worth of a dollar today
B) Calculations only on the original principle
C) A compound interest method
D) Using a simple interest method

Question 8

The time value of money refers to:

A) Factors that show future value
B) Factors that show past value
C) Concept that a dollar received today is worth more than a dollar received in the future
D) Concept that a dollar received today is worth less than a dollar received in the future

Question 9

Annuity due refers to:

A) A series of equal annuity payments made or received at the beginning of each period
B) A series of equal payments in the future is worth today
C) Factors that show the value today of equal flows at the end of each future period
D) An equal series of payments worth at some future date

Question 10

An effective interest rate is:

A) The stated annual interest rate of a loan which does not account for compounding
B) The actual interest rate earned or charged which is affected by the number of compounding periods.
C) The frequency of compounding for any given interest level and time period
D) None of the above

Question 11

Interest determines how much an amount of money invested today will be worth in the future.

Question 12

Opportunity cost are revenues gained by forgoing other opportunities.

Question 13

Future value implies using the compound interest method.

Question 14

To find future value discount.....

Question 15

Perpetual annuities refers to an organization making an investment to generate an annuity for an infinite period.

Question 16

Amount of Perpetuity = Initial Investment x Interest Rate.

Question 17

An effective interest rate is the stated annual interest rate of a loan.

Question 18

In a simple interest method the principle is the amount invested.

Question 19

Tables and spreadsheets are used to calculate future value.