Time Value Of Money 1: Analyzing Single Cash Flows

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Question 1
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Which of the following is NOT true when developing a time line?

Cash inflows are designated with a positive number.

Cash outflows are designated with a positive number.

The cost is known as the interest rate.

The time line shows the magnitude of cash flows at different points in time.

Question 2
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Multiple Choice

People borrow money because they expect

their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan.

the time value of money to apply only if they are saving money.

interest rates to rise.

that consumers don't need to calculate the impact of interest on their purchases.

Question 3
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How are future values affected by changes in interest rates?

The lower the interest rate, the larger the future value will be.

The higher the interest rate, the larger the future value will be.

Future values are not affected by changes in interest rates.

One would need to know the present value in order to determine the impact.

Question 4
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Multiple Choice

How are present values affected by changes in interest rates?

The lower the interest rate, the larger the present value will be.

The higher the interest rate, the larger the present value will be.

Present values are not affected by changes in interest rates.

One would need to know the future value in order to determine the impact.

Question 5
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Multiple Choice

discounting.

multiplying.

compounding.

computing.

Question 6
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The process of figuring out how much an amount that you expect to receive in the future is worth today is called

discounting.
multiplying.
compounding.
computing.
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Question 7
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The interest rate, i, which we use to calculate present value, is often referred to as the

discount rate.
multiplier.
compound rate.
dividend.
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Question 8
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The Rule of four is a simple mathematical approximation for

the present value required to double an investment.
the future value required to double an investment.
the payments required to double an investment.
the number of years required to double an investment.
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Question 9
Multiple Choice

With regard to money deposited in a bank, future values are

smaller than present values.
larger than present values.
equal to present values.
are completely independent of present values.
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Question 10
Multiple Choice

A dollar paid (or received) in the future is

worth more than a dollar paid (or received) today.
worth as much as a dollar paid (or received) today.
not worth as much as a dollar paid (or received) today.
not comparable to a dollar paid (or received) today.
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Question 11
Multiple Choice

When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining

the annual rate earned.
the annual payments required.
whether the present value or the future value is a cash inflow.
whether the present value or the future value is a cash outflow.
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Question 12
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When calculating the number of years needed to grow an investment to a specific amount of money

the lower the interest rate, the shorter the time period needed to achieve the growth.
the higher the interest rate, the shorter the time period needed to achieve the growth.
the interest rate has nothing to do with the length of the time period needed to achieve the growth.
the Rule of 72 is the only way to calculate the time period needed to achieve the growth.
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Question 13
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Moving cash flows from one point in time to another requires us to use

only present value equations.
only future value equations.
both present value and future value equations.
the Rule of 72.
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Question 14
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The longer money can earn interest,

the greater the interest earned on the original deposit exceeds the interest-on-interest.
the greater the compounding effect.
the greater the present value must be to reach a financial goal.
the greater the risk to the investor of not reaching a financial goal.
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Question 15
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What is the future value of \$700 deposited for one year earning 4 percent interest rate annually?

\$28
\$700
\$728
\$1,428
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Question 16
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What is the future value of \$1,000 deposited for one year earning 5 percent interest rate annually?

\$1,000
\$1,005
\$1,050
\$2,050
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Question 17
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What is the future value of \$2,000 deposited for one year earning 6 percent interest rate annually?

\$120
\$2.000
\$2,120
\$4,120
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Question 18
Multiple Choice

How much would be in your savings account in 7 years after depositing \$100 today if the bank pays 5 percent interest per year?

\$135.00
\$140.71
\$735.00
\$814.20
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Question 19
Multiple Choice

How much would be in your savings account in 10 years after depositing \$50 today if the bank pays 7 percent interest per year?

\$35.00
\$98.36
\$535.00
\$690.82
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Question 20
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