Question 1

Present value (PV) refers to:

Accepted Answer

Present value (PV) refers to the current worth of a future sum of money or stream of cash flows given a specified rate of return. It contrasts with future value, which evaluates the future worth of a current investment. PV calculations are fundamental in finance for assessing the value of investments, loans, and annuities, taking into account the time value of money.

Question 2

Compound interest method refers to:

Accepted Answer

Interest in the compound interest method is calculated on both the original principal and on all interest that has been added to the principal since the loan or investment began. This means interest is earned on interest, leading to exponential growth of the investment or loan over time.

Question 3

Future Value Table is used :

Accepted Answer

Future Value Tables are specifically designed to provide a quick reference for calculating the future value of a sum, serving as an alternative to using the future value formula directly. They are not alternatives for calculating present value or the time value of money, which have their own formulas and tables.

Question 4

Discounting is:

Accepted Answer

Discounting is the process of determining the present value of a payment or a stream of payments that will be received in the future, by applying a discount rate.

Question 5

Present value of an annuity refers to:

Accepted Answer

Present value of an annuity is the current worth of a series of equal payments to be made in the future, considering the time value of money. This concept discounts future payments into their equivalent value today.

Question 6

Compound growth rate is calculated:

Accepted Answer

The answer of Compound growth rate is calculated:
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Question 7

Future value is determined using:

Accepted Answer

Future value is determined using a compound interest method, which calculates interest on both the initial principal and the accumulated interest from previous periods.

Question 8

The time value of money refers to:

Accepted Answer

The answer of The time value of money refers to:
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Question 9

Annuity due refers to:

Accepted Answer

An annuity due is characterized by payments that are made or received at the beginning of each period, distinguishing it from an ordinary annuity where payments are made at the end of each period.

Question 10

An effective interest rate is:

Accepted Answer

The effective interest rate takes into account the impact of compounding within a specific period, making it a more accurate measure of the actual interest rate earned on an investment or charged on a loan than the nominal or stated interest rate.

Question 11

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

Accepted Answer

Interest is the cost of using someone else's money. When you invest money, the interest earned on that investment increases its future value.

Question 12

Opportunity cost are revenues gained by forgoing other opportunities.

Accepted Answer

Opportunity cost refers to the benefits or value one misses out on by choosing one alternative over another, not the revenues gained.

Question 13

Future value implies using the compound interest method.

Accepted Answer

Future value calculations often involve compound interest, which takes into account the interest earned on both the initial principal and the accumulated interest from previous periods.

Question 14

To find future value discount.....

Accepted Answer

To find future value, you typically apply interest rates to the present value to account for growth over time, rather than discounting. Discounting is used to find present value, not future value.

Question 15

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

Accepted Answer

Perpetual annuities are financial instruments that provide a stream of payments indefinitely, without an end date, effectively generating an annuity for an infinite period.

Question 16

Amount of Perpetuity = Initial Investment x Interest Rate.

Accepted Answer

The formula for the amount of a perpetuity is A = P/r, where A is the amount of the perpetuity, P is the initial investment, and r is the interest rate.

Question 17

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

Accepted Answer

An effective interest rate takes into account the compounding periods during a year and therefore may differ from the stated annual interest rate, which does not account for compounding.

Question 18

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

Accepted Answer

In the simple interest method, the principal refers to the initial amount of money invested or loaned, upon which interest is calculated.

Question 19

Tables and spreadsheets are used to calculate future value.

Accepted Answer

Tables and spreadsheets can be used to calculate future value by applying formulas that take into account variables such as interest rate, time period, and initial investment amount.

Quiz 6: The Time Value of Money