Time Value Of Money 1: Analyzing Single Cash Flows

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Question 1

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Multiple Choice

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

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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.

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Question 2

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Multiple Choice

People borrow money because they expect

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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.

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Question 3

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Multiple Choice

How are future values affected by changes in interest rates?

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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.

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Question 4

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Multiple Choice

How are present values affected by changes in interest rates?

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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.

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Question 5

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Multiple Choice

We call the process of earning interest on both the original deposit and on the earlier interest payments

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discounting.

multiplying.

compounding.

computing.

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Question 6

Multiple Choice

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

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discounting.

multiplying.

compounding.

computing.

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Question 7

Multiple Choice

The interest rate, i, which we use to calculate present value, is often referred to as the

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discount rate.

multiplier.

compound rate.

dividend.

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Question 8

Multiple Choice

The Rule of four is a simple mathematical approximation for

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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

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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

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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

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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

Multiple Choice

When calculating the number of years needed to grow an investment to a specific amount of money

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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

Multiple Choice

Moving cash flows from one point in time to another requires us to use

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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

Multiple Choice

The longer money can earn interest,

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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

Multiple Choice

What is the future value of $700 deposited for one year earning 4 percent interest rate annually?

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$28

$700

$728

$1,428

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Question 16

Multiple Choice

What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?

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$1,000

$1,005

$1,050

$2,050

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Question 17

Multiple Choice

What is the future value of $2,000 deposited for one year earning 6 percent interest rate annually?

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$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?

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$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?

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$35.00

$98.36

$535.00

$690.82

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Question 20

Multiple Choice

A deposit of $500 earns the following interest rates? 5 percent in the first year,
6 percent in the second year, and
8 percent in the third year.
What would be the third year future value?

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$527.14

$595.00

$601.02

$1595.00

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Time Value Of Money 1: Analyzing Single Cash Flows

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

People borrow money because they expect

How are future values affected by changes in interest rates?

How are present values affected by changes in interest rates?

We call the process of earning interest on both the original deposit and on the earlier interest payments

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

The interest rate, i, which we use to calculate present value, is often referred to as the

The Rule of four is a simple mathematical approximation for

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

A dollar paid (or received) in the future is

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

When calculating the number of years needed to grow an investment to a specific amount of money

Moving cash flows from one point in time to another requires us to use

The longer money can earn interest,

What is the future value of $700 deposited for one year earning 4 percent interest rate annually?

What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?

What is the future value of $2,000 deposited for one year earning 6 percent interest rate annually?

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

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

A deposit of $500 earns the following interest rates? 5 percent in the first year,6 percent in the second year, and8 percent in the third year.What would be the third year future value?

A deposit of $500 earns the following interest rates? 5 percent in the first year,
6 percent in the second year, and
8 percent in the third year.
What would be the third year future value?