Exam 9: The Time Value of Money

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Using semiannual compounding rather than annual compounding will increase the future value of an annuity.

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After 10 years, some shares of stock originally purchased for $500 total were sold for $900 total. What was the yield on the investment? Choose the closest answer.

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Mr. Blochirt is creating a college investment fund for his daughter. He will put in $1,000 per year for the next 5 years starting one year from now and expects to earn a 6% annual rate of return. How much money will his daughter have when she starts college?

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When the inflation rate is zero, the present value of $1 is identical to the future value of $1.

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The shorter the length of time between a present value and its corresponding future value,

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Present value is the opposite of the future value.

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In evaluating capital investment projects, current outlays must be judged against the current value of future benefits.

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Compounding refers to the growth process that turns $1 today into a greater value several periods in the future.

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Fishermen's Corp. is considering purchasing a boat. If the boat was purchased, it is expected to receive $20,000 at the end of the first year, $40,000 at the end of the second year, and $60,000 at the end of the third year within its business. What is the boat worth to Fishermen's Corp today, assume an 8% discount rate.

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Joe Nautilus has $210,000 and wants to retire. What approximate return must his money earn so he may receive annual benefits of $30,000 for the next 10 years?

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You are to receive $12,000 at the end of each of five years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?

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The process of earning more interest on a previous period's interest is called future value.

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In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.

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If you invest $10,000 today at 10% interest, how much will you have in 10 years?

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Discounted at 6%, $1,000 received three years from now is worth less than $800 received today.

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Luke believes that he can invest $5,000 per year for his retirement in 30 years. How much will he have available for retirement if he can earn 8% on his investment and begins investing one year from now?

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Increasing the number of periods will increase all of the following except

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Sara would like to evaluate the performance of her portfolio over the past 10 years. What compound annual rate of return has she achieved if she invested $12,000 ten years ago and now has $25,000?

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As the time period until receipt increases, the present value

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A major disadvantage to time value of money is that is only considers one item that changes the value of the dollar such as interest.

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