FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: The Time Value of Money

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

True/False

Review LaterAdd Note

Review Later

The present value is simply the current value of a future cash flow that has been discounted at the relevant discount rate.

A) True
B) False

Correct Answer

verified

Show Answer

Question 42

True/False

Review LaterAdd Note

Review Later

The higher the discount rate, the lower the present value of a future cash flow.

A) True
B) False

Correct Answer

verified

Show Answer

Question 43

True/False

Review LaterAdd Note

The present value factor 1 / (1 + i)ⁿ is the reciprocal of the future value factor (1 + i)ⁿ.

Evelyn has invested $10,000/year for ten years at an annual interest rate of 8%. Beginning in the 11th year interest rates decrease to 6%. Approximately how much does she have in her account after fifteen years (round to the nearest dollar) ?

Joseph Ray just received an inheritance of $35,775 from his great aunt. He plans to invest the funds for retirement. If Joseph can earn 4.75% per year with quarterly compounding for 32 years, how much will he have accumulated? (Round off to the nearest dollar.)

Nickole wants to invest in a bank CD that will pay her 7.8 percent annually. If she invests $11,500 today, when will she reach her goal of $15,000? (Round off to the nearest year.)

Shawn Bowker invested $10,000 in a money market account that will pay an annual interest rate of 5.75 percent compounded daily. How much will the interest on interest be after two years?

Which of the following statements is correct, assuming positive interest rates and holding other things constant?

Which of the following statements is correct?

Albert borrows money from Jacob today with a promise to repay $7,418.87 in four years. If Jacob could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Albert today? (Round to nearest dollar.)

Robert Kelly wants to start a business in 10 years. He hopes to have $100,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 9.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.)

Which of the following is true of the future value of an investment?

Compound interest increases as the number of years decreases.

You agree to deposit $500 at the beginning of each month into a bank account for the next 24 months. At the end of the 24th month, you will have $13,000 in your account. If the bank compounds interest monthly, what annual interest rate will you have earned?

The time value of money accounts for the fact that people place different value on that money over time.

Bovic Inc. is a growing company with sales of $1.25 million this year. The company expects to grow at an annual rate of 25 percent for the next three years, followed by 20 percent per year for the next two years. What will be Bovic's sales at the end of five years? (Round to the nearest percent.)

Michael Harper has $3,000 to invest for three years. He wants to receive $5,000 at the end of the three years. What invest rate would his investment have to earn to achieve his goal? (Round to the nearest percent.)

Patrick Smith has $5,000 to invest in a small business venture. His partner has promised to pay him back $8,200 in five years. What is the return that this investment earns?

Dat Nguyen is depositing $17,500 in an account paying an annual interest rate of 8.25 percent compounded monthly. What is the interest on interest after six years?

What's the future value of $1,500 after 5 years if the annual return is 6%, compounded quarterly?