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 ____ .

Choose correct answer/s
A

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

B

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

C

rate per time period, the number of time periods

D

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

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Question 2
Free
Multiple Choice

The present value of a single amount can be represented as

Choose correct answer/s
A

PV0 = FVn(PVIFi,n)

B

PV0 = FVn(PVIFAi,n)

C

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

D

a and c

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Question 3
Free
Multiple Choice

The basic future value equation is given by

Choose correct answer/s
A

FVn = PV0(PVIFi,n)

B

FVn = PV0(FVIFAi,n)

C

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

D

FVn = PV0(FVIFi,n)

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Question 4
Free
Multiple Choice

The process of finding present values is frequently called

Choose correct answer/s
A

annualizing

B

compounding

C

discounting

D

leasing

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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 ____ .

Choose correct answer/s
A

dividing, (1 + i)

B

dividing, (1 + i)n

C

multiplying, (1 + i)

D

multiplying, (1 + i)n

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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)

Choose correct answer/s
A
annuity
B
annuity due
C
sinking fund
D
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

Choose correct answer/s
A
future value of an annuity
B
future value of an annuity due
C
present value of an annuity
D
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

Choose correct answer/s
A
future value of an annuity
B
present value of an annuity
C
future value of an annuity due
D
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),

Choose correct answer/s
A
payments are assumed to be made at the beginning of each period
B
PVIFA factors decrease with an increase in the interest rate
C
PVIFA factors increase with an increase in the number of periods
D
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),

Choose correct answer/s
A
payments are assumed to be made at the end of each period
B
FVIFA factors increase with an increase in the interest rate
C
FVIFA factors increase with an increase in the number of periods
D
all of the above
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Question 11
Multiple Choice

An annuity due is one in which

Choose correct answer/s
A
payments or receipts occur at the end of each period.
B
payments or receipts occur at the beginning of each period.
C
payments or receipts occur forever.
D
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.

Choose correct answer/s
A
it will be worth less
B
it will be worth more
C
it will not change
D
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?

Choose correct answer/s
A
extend the cash flows over a longer period of time
B
increase the discount rate
C
decrease the discount rate
D
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

Choose correct answer/s
A
the discount rate must be very high
B
there is no inflation
C
the discount rate must be zero
D
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?

Choose correct answer/s
A
9 years
B
7 years
C
8 years
D
10 years
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Question 16
Multiple Choice

The present value of an ordinary annuity is the

Choose correct answer/s
A
sum of the present value of a series of equal periodic payments
B
future value of an equal series of payments
C
receipt of equal cash flows for a specified amount of time
D
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

Choose correct answer/s
A
rate of interest is reduced each year
B
amount of interest paid is reduced each year
C
payment is reduced each year
D
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

Choose correct answer/s
A
term loans
B
lease contracts
C
capital investments
D
capital recovery problems
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Question 19
Multiple Choice

The more frequent the compounding the

Choose correct answer/s
A
greater the present value
B
greater the amount deposited
C
greater the effective interest rate
D
lesser the future value
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Question 20
Multiple Choice

The effective rate of interest will always be ____ the nominal rate.

Choose correct answer/s
A
greater than
B
equal to
C
less than
D
equal to or greater than
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