Question 1

The future value of $200 received today and deposited at 8 percent for three years is

Accepted Answer

The future value can be calculated using the formula FV = PV(1+r)^n, where PV is the present value, r is the interest rate, and n is the number of years. Substituting the given values, we get FV = 200(1+0.08)^3 = $251.98, which is closest to option B.

Question 2

Everything else being equal, the higher the interest rate, the higher the future value.

Accepted Answer

This is because a higher interest rate means that the investment earns more money over time, leading to a higher future value.

Question 3

The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called

Accepted Answer

This is the definition of present value. Future value is the opposite, it is the amount to which a present amount will grow after earning interest over a specified period. Future value of an annuity and present value of an annuity are calculations for equal periodic payments over a specified period, not for a lump sum investment.

Question 4

Calculate the present value of $89,000 to be received in 15 years, assuming an opportunity cost of 14 percent.

Accepted Answer

The answer of Calculate the present value of $89,000 to...

Question 5

The future value of a dollar ________ as the interest rate increases and ________ the farther in the future an initial deposit is to be received.

Accepted Answer

The answer of The future value of a dollar ________...

Question 6

The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is

Accepted Answer

The present value can be calculated using the formula: PV = FV / (1 + r)^n, where PV is present value, FV is future value, r is the opportunity cost, and n is the number of periods. Plugging in the given values, we get PV = 100 / (1 + 0.09)^10 = $42. Therefore, the correct answer is choice C.

Question 7

Everything else being equal, the longer the period of time, the lower the present value.

Accepted Answer

This is because the longer the period of time, the more time value of money is discounted, making the present value lower.

Question 8

The future value of $100 received today and deposited at 6 percent for four years is

Accepted Answer

The future value (FV) of an investment is calculated using the formula FV = PV(1 + r)^n, where PV is the present value, r is the annual interest rate, and n is the number of years. Substituting the given values, FV = $100(1 + 0.06)^4 = $126.25, which rounds to $126.

Question 9

Future value increases with increases in the interest rate or the period of time funds are left on deposit.

Accepted Answer

This is because compounding interest causes the balance to grow at an increasing rate over time. Higher interest rates or longer periods of time allow for more compounding to occur, leading to a higher future value.

Question 10

The greater the interest rate and the longer the period of time, the higher the present value.

Accepted Answer

The greater the interest rate and the longer the period of time, the lower the present value, because present value is calculated by discounting future cash flows back to their value today, and higher rates or longer periods reduce the present value of those cash flows.

Question 11

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is

Accepted Answer

PV = Future Value / (1 + i)^n
PV = 200 / (1 + 0.1)^10
PV = $77.39 (rounded to the nearest cent)
Therefore, the present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is $77. The correct answer is D.

Question 12

Everything else being equal, the higher the discount rate, the higher the present value.

Accepted Answer

A higher discount rate reduces the present value of future cash flows because it decreases the value of money received in the future.

Question 13

If you expect to retire in 30 years, are currently comfortable living on $50,000 per year and expect inflation to average 3% over the next 30 years, what amount of annual income will you need to live at the same comfort level in 30 years?

Accepted Answer

Using the formula: Future Value (FV) = Present Value (PV) x (1 + i)^n
FV = $50,000 x (1 + 0.03)^30
FV = $121,363
Therefore, you would need $121,363 per year to maintain the same comfort level in 30 years.

Question 14

The annual rate of return is variously referred to as the

Accepted Answer

The annual rate of return can be referred to as the discount rate, as it is used to calculate the present value of future cash flows. It can also be referred to as the opportunity cost, as it represents the return that could be earned from the best alternative investment. Finally, it can be referred to as the cost of capital, as it represents the cost of financing a project or investment. Therefore, all of the above options are correct.

Question 15

Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years.

Accepted Answer

The answer of Calculate the future value of $4,600 received...

Question 16

Future value is the value of a future amount at the present time, found by applying compound interest over a specified period of time.

Accepted Answer

Future value is the value of a current asset at a specified date in the future based on an assumed rate of growth over time. It is calculated by applying compound interest over a specified period of time to the present value.

Question 17

When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called

Accepted Answer

Compound interest refers to the interest earned on both the initial deposit and any accumulated interest that has become part of the principal. This leads to exponential growth over time and can result in higher returns compared to simple interest (where only the initial deposit earns interest). Discount interest is a type of simple interest where interest is deducted from the principal upfront, while primary interest and future value are not relevant terms in this context.

Question 18

For a given positive interest rate, the future value of $100 increases with the passage of time. Thus, the longer the period of time, the greater the future value.

Accepted Answer

This statement is true according to the principles of time value of money. As time passes, the interest earned on the initial investment or principal increases the future value of the investment.

Question 19

Since individuals are always confronted with opportunities to earn positive rates of return on their funds, the timing of cash flows does not have any significant economic consequences.

Accepted Answer

The timing of cash flows can have significant economic consequences, as earning a higher rate of return on funds earlier can result in greater wealth accumulation over time. Additionally, the timing of cash flows can affect an individual's ability to pay bills or take advantage of certain opportunities at a particular moment, which can impact their financial well-being.

Question 20

Time-value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

Accepted Answer

Time value of money is based on the belief that a dollar today is worth more than a dollar that will be received at some future date, due to its potential earning capacity.

Quiz 5: Time Value of Money