# The Time Value Of Money

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Question 1
Free
Multiple Choice

## The amount of simple interest is equal to the product of the principal times ____ times ____ .

(1 + rate per time period), the number of time periods

(1 + rate per time period), (the number of time periods -1)

rate per time period, the number of time periods

rate per time period, (the number of time periods - 1)

Question 2
Free
Multiple Choice

## The present value of a single amount can be represented as

PV0 = FVn(PVIFi,n)

PV0 = FVn(PVIFAi,n)

PV0 = FVn[1/(1 + i)n]

a and c

Question 3
Free
Multiple Choice

## The basic future value equation is given by

FVn = PV0(PVIFi,n)

FVn = PV0(FVIFAi,n)

FVn = PV0(1/(1+ i)n)

FVn = PV0(FVIFi,n)

Question 4
Free
Multiple Choice

annualizing

compounding

discounting

leasing

Question 5
Free
Multiple Choice

## The values shown in ordinary annuity tables (either present value or compound value) can be adjusted to the annuity due form by ____ the ordinary annuity interest factor by ____ .

dividing, (1 + i)

dividing, (1 + i)n

multiplying, (1 + i)

multiplying, (1 + i)n

Question 6
Multiple Choice

## A(n) ____ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever)

annuity
annuity due
sinking fund
perpetuity
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Question 7
Multiple Choice

## Finding the discounted current value of \$1,000 to be received at the end of each of the next 5 years requires calculating the

future value of an annuity
future value of an annuity due
present value of an annuity
present value of an annuity due
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Question 8
Multiple Choice

## Finding the compound sum of \$1,000 to be received at the beginning of each of the next 5 years requires calculating the

future value of an annuity
present value of an annuity
future value of an annuity due
present value of an annuity due
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Question 9
Multiple Choice

## When using a present value of an annuity table(e.g.,Table IV at the back of the book),

payments are assumed to be made at the beginning of each period
PVIFA factors decrease with an increase in the interest rate
PVIFA factors increase with an increase in the number of periods
b and c only
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Question 10
Multiple Choice

## When using a future value of an annuity table (e.g., Table III at the back of the book),

payments are assumed to be made at the end of each period
FVIFA factors increase with an increase in the interest rate
FVIFA factors increase with an increase in the number of periods
all of the above
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Question 11
Multiple Choice

## An annuity due is one in which

payments or receipts occur at the end of each period.
payments or receipts occur at the beginning of each period.
payments or receipts occur forever.
cash flows occur continuously.
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Question 12
Multiple Choice

## You have just won a \$5 million lottery to be received in twenty annual equal payments of \$250,000. What will happen to the present value of your winnings if the interest rate increases during the next 20 years.

it will be worth less
it will be worth more
it will not change
it will increase during the first ten years
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Question 13
Multiple Choice

## You have just calculated the present value of the expected cash flows of a potential investment. Management thinks your figures are too low. Which of the following actions would improve the present value of your cash flows?

extend the cash flows over a longer period of time
increase the discount rate
decrease the discount rate
extend the cash flows over a longer period of time, and decrease the discount rate
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Question 14
Multiple Choice

## If the present value of a given sum is equal to its future value, then

the discount rate must be very high
there is no inflation
the discount rate must be zero
none of the answers is correct
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Question 15
Multiple Choice

## Using the "Rule of 72," about how long will it take a sum of money to double in value if the annual interest rate is 9 percent?

9 years
7 years
8 years
10 years
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Question 16
Multiple Choice

## The present value of an ordinary annuity is the

sum of the present value of a series of equal periodic payments
future value of an equal series of payments
receipt of equal cash flows for a specified amount of time
sum of the future value of an equal series of payments
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Question 17
Multiple Choice

## When a loan is amortized over a five year term, the

rate of interest is reduced each year
amount of interest paid is reduced each year
payment is reduced each year
balance is paid as a balloon payment in the fifth year
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Question 18
Multiple Choice

## Annuity due calculations are especially important when dealing with

term loans
lease contracts
capital investments
capital recovery problems
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Question 19
Multiple Choice

## The more frequent the compounding the

greater the present value
greater the amount deposited
greater the effective interest rate
lesser the future value
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Question 20
Multiple Choice