Question 1

Future value is best deﬁned as:

Accepted Answer

A)  An amount of money received each period for a stated number of periods. 
B)  The amount an investment is worth in today's dollars. 
C)  The dollar amount invested today at a stated rate of interest for some period of time. 
D)  The amount an investment is worth at the end of some stated period of time. 
E)  The cash value of an investment in today's dollars based on a stated rate of interest. 
A)  An amount of money received each period for a stated number of periods. 
B)  The amount an investment is worth in today's dollars. 
C)  The dollar amount invested today at a stated rate of interest for some period of time. 
D)  The amount an investment is worth at the end of some stated period of time. 
E)  The cash value of an investment in today's dollars based on a stated rate of interest.

Question 2

Betty invests $500 in an account that pays 3% simple interest. How much money will Betty have at the end of ten years?

Accepted Answer

A)  $630.00 
B)  $633.33 
C)  $650.00 
D)  $671.96 
E)  $675.00 
A)  $630.00 
B)  $633.33 
C)  $650.00 
D)  $671.96 
E)  $675.00

Question 3

As long as the interest rate is greater than zero, the present value of a single sum will always:

Accepted Answer

A)  Increase as the interest rate increases. 
B)  Be less than the future value. 
C)  Decrease as the period of time decreases. 
D)  Equal the future value if the time period is one year. 
E)  Increase as the number of periods increases. 
A)  Increase as the interest rate increases. 
B)  Be less than the future value. 
C)  Decrease as the period of time decreases. 
D)  Equal the future value if the time period is one year. 
E)  Increase as the number of periods increases.

Question 4

The interest rate used to calculate the present value of future cash ﬂows is called the ____________ rate.

Accepted Answer

A)  Free interest. 
B)  Annual interest. 
C)  Compound interest. 
D)  Simple interest. 
E)  Discount. 
A)  Free interest. 
B)  Annual interest. 
C)  Compound interest. 
D)  Simple interest. 
E)  Discount.

Question 5

Provide a deﬁnition of present value (PV).

Accepted Answer

The current value of

Question 6

The present value factor will decrease:

Accepted Answer

A)  The longer the period of time. 
B)  The higher the future value. 
C)  The lower the interest rate. 
D)  The higher the present value. 
E)  The slower the rate of growth. 
A)  The longer the period of time. 
B)  The higher the future value. 
C)  The lower the interest rate. 
D)  The higher the present value. 
E)  The slower the rate of growth.

Question 7

Sue invested $5,000 eleven years ago at 12%. Terri has the same amount saved today as Sue has. Terri also earns 12% but she only invested $2,500. How long ago did Terri invest her money?

Accepted Answer

A)  17.1 years 
B)  17.4 years 
C)  17.9 years 
D)  21.5 years 
E)  22.0 years 
A)  17.1 years 
B)  17.4 years 
C)  17.9 years 
D)  21.5 years 
E)  22.0 years

Question 8

Tropical Tans is saving money to build a new salon. Three years ago, they set aside $12,000 for this purpose. Today, that account is worth $16,418. What rate of interest is Tropical Tans earning on this
Money?

Accepted Answer

A)  10.88% 
B)  10.97% 
C)  11.01% 
D)  11.14% 
E)  11.23% 
A)  10.88% 
B)  10.97% 
C)  11.01% 
D)  11.14% 
E)  11.23%

Question 9

What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for six years?

Accepted Answer

A)  $17,133.35 
B)  $27,476.42 
C)  $36,478.56 
D)  $39,521.75 
E)  $41,374.89 
A)  $17,133.35 
B)  $27,476.42 
C)  $36,478.56 
D)  $39,521.75 
E)  $41,374.89

Question 10

How long will it take for money to tripe at a rate of 4.5% compounded quarterly?

Accepted Answer

At the given rate, m

Question 11

Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now. She can earn 7% on her savings. How much more will she have to deposit if she waits one
More year before investing versus if she deposits one lump sum today?

Accepted Answer

A)  $466.44 
B)  $469.15 
C)  $470.23 
D)  $471.08 
E)  $471.54 
A)  $466.44 
B)  $469.15 
C)  $470.23 
D)  $471.08 
E)  $471.54

Question 12

You would like to give your daughter $50,000 towards her college education sixteen years from now. How much money must you set aside today for this purpose if you can earn 7.8% on your
Funds?

Accepted Answer

A)  $14,775.50 
B)  $15,033.84 
C)  $15,250.00 
D)  $16,245.33 
E)  $16,909.13 
A)  $14,775.50 
B)  $15,033.84 
C)  $15,250.00 
D)  $16,245.33 
E)  $16,909.13

Question 13

You collect old model trains. One particular model increases in value at a rate of 6.5% per year. Today, the model is worth $1,670. How much additional money can you make if you wait 4 years to
Sell the model rather than selling it 2 years from now?

Accepted Answer

A)  $196.67 
B)  $208.04 
C)  $241.79 
D)  $254.24 
E)  $280.15 
A)  $196.67 
B)  $208.04 
C)  $241.79 
D)  $254.24 
E)  $280.15

Question 14

Why do you think the concept known as the time value of money plays such a critical role in
ﬁnance?

Accepted Answer

Student answers will vary. However, each

Question 15

To create the same future value given a stated discount rate, you can:

Accepted Answer

A)  Decrease both the present value and the time period. 
B)  Increase both the present value and the time period. 
C)  Decrease the time period and hold the present value constant. 
D)  Increase the present value and hold the time period constant. 
E)  Increase the present value and decrease the time period. 
A)  Decrease both the present value and the time period. 
B)  Increase both the present value and the time period. 
C)  Decrease the time period and hold the present value constant. 
D)  Increase the present value and hold the time period constant. 
E)  Increase the present value and decrease the time period.

Question 16

The present value will increase the higher the rate of interest.

Accepted Answer

A) True 
 B)False

Question 17

Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank should she use if she wishes to maximize her investment?

Accepted Answer

A)  Bank A, which offers a simple rate of 4%. 
B)  Bank B, which offers a simple rate of 5%. 
C)  Bank C, which offers a rate of 4% compounded annually. 
D)  Bank D, which offers a rate of 5% compounded monthly. 
E)  Bank E, which offers a rate of 5% compounded annually. 
A)  Bank A, which offers a simple rate of 4%. 
B)  Bank B, which offers a simple rate of 5%. 
C)  Bank C, which offers a rate of 4% compounded annually. 
D)  Bank D, which offers a rate of 5% compounded monthly. 
E)  Bank E, which offers a rate of 5% compounded annually.

Question 18

Today, you earn a salary of $42,500. What will be your annual salary 10 years from now if you earn annual raises of 3.2%?

Accepted Answer

A)  $56,100.00 
B)  $57,414.06 
C)  $58,235.24 
D)  $59,122.08 
E)  $59,360.45 
A)  $56,100.00 
B)  $57,414.06 
C)  $58,235.24 
D)  $59,122.08 
E)  $59,360.45

Question 19

The future value will increase the longer the period of time.

Accepted Answer

A) True 
 B)False

Question 20

If $20,000 was invested at 5% over ﬁve years, determine the difference if this investment was
based on simple interest versus interest that was compounded annually.

Accepted Answer

Simple interest prov

Exam 5: Introduction to Valuation: the Time Value of Money

Future value is best deﬁned as:

Betty invests $500 in an account that pays 3% simple interest. How much money will Betty have at the end of ten years?

As long as the interest rate is greater than zero, the present value of a single sum will always:

The interest rate used to calculate the present value of future cash ﬂows is called the ____________ rate.

Provide a deﬁnition of present value (PV).

The present value factor will decrease:

Sue invested $5,000 eleven years ago at 12%. Terri has the same amount saved today as Sue has. Terri also earns 12% but she only invested $2,500. How long ago did Terri invest her money?

Tropical Tans is saving money to build a new salon. Three years ago, they set aside $12,000 for this purpose. Today, that account is worth $16,418. What rate of interest is Tropical Tans earning on this Money?

What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for six years?

How long will it take for money to tripe at a rate of 4.5% compounded quarterly?

Theresa wants to save $10,000 so that she can surprise her husband with a vacation six years from now. She can earn 7% on her savings. How much more will she have to deposit if she waits one More year before investing versus if she deposits one lump sum today?

You would like to give your daughter $50,000 towards her college education sixteen years from now. How much money must you set aside today for this purpose if you can earn 7.8% on your Funds?

You collect old model trains. One particular model increases in value at a rate of 6.5% per year. Today, the model is worth $1,670. How much additional money can you make if you wait 4 years to Sell the model rather than selling it 2 years from now?

Why do you think the concept known as the time value of money plays such a critical role in ﬁnance?

To create the same future value given a stated discount rate, you can:

The present value will increase the higher the rate of interest.

Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank should she use if she wishes to maximize her investment?

Today, you earn a salary of $42,500. What will be your annual salary 10 years from now if you earn annual raises of 3.2%?

The future value will increase the longer the period of time.

If $20,000 was invested at 5% over ﬁve years, determine the difference if this investment was based on simple interest versus interest that was compounded annually.

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short-Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Filters