Exam 14: The Basic Tools of Finance: Present Value Measuring the Time Value of Money

If you deposit $900 into an account for two years and the interest rate is 4%,how much do you have at the end of the two years?

Compounding refers directly to

Which famous person referred to compounding as "the greatest mathematical discovery of all time?"

Assuming the interest rate is 6 percent,which of the following has the greatest present value?

Jorge deposited $1,000 into an account three years ago.The first two years he earned 5 percent interest;the third year he earned 6 percent interest.How much money does Jorge have in his account today?

Which of the following is the correct way to compute the future value of $1 put into an account that earns 5 percent interest for 16 years?

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

A company that produces baseball gloves is considering buying some new equipment that it expects will increase future profits.If the interest rate rises,then the present value of these future profits

A firm has three different investment options,each costing $10 million.Option A will generate $12 million in revenue at the end of one year.Option B will generate $15 million in revenue at the end of two years.Option C will generate $18 million in revenue at the end of three years.Which option should the firm choose?

The You Look Marvelous! cosmetic company is considering building a new shampoo factory.Its accountants and board of directors meet and decide that it is not a good idea to build the factory.If interest rates fall after the meeting

You put $150 in the bank two years ago and forgot about it.The bank sends you a notice that you now have $169.34 in your account.What interest rate did you earn?

Greg's Tasty Ice Cream is considering building a new ice cream factory that costs $8.3 million.The company accountants believe that,not accounting for interest costs,building the factory will increase profits by $5 million the first year,$4 million the second year and have no value thereafter.Greg's Tasty Ice Cream should build the factory if the interest rate is

Discounting refers directly to

Suppose you win the lottery and one of your payment options is to receive $20,000 today,$20,000 one year from now,and $20,000 two years from now.If the interest rate is 5%,what is the present value of this option?

Suppose the interest rate is 7 percent.Consider four payment options: Option A: $500 today. Option B: $550 one year from today. Option C: $575 two years from today. Option D: $600 three years from today. -Which of the payments has the highest present value today?

Ronaldo's Foods considered building a store in a new location.The owners and their accountants decided that this was not the profitable thing to do.However,soon after they made this decision,both the interest rate and the cost of building the store changed.In which case do these changes both make it more likely that they will now build the store?

Suppose you win a small lottery and you are given the following choice: You can receive (1)an immediate payment of $5,000 or (2)two annual payments,each in the amount of $2,700,with the first payment coming one year from now,and the second payment coming two years from now.You would choose to take the two annual payments if the interest rate is

Other things the same,an increase in the interest rate makes the quantity of loanable funds demanded

Laura says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent.Cassie says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

You are expecting to receive $3,500 at some time in the future.Which of the following would unambiguously increase the present value of this future payment?