1、Chapter 04 - Introduction to Valuation: The Time Value of Money4-1Chapter 04Introduction to Valuation: The Time Value of MoneyMultiple Choice Questions1. Martha is investing $5 today at 6 percent interest so she can have $10 later. The $10 is referred to as the: A. true value.B. future value.C. pres
2、ent value.D. discounted value.E. complex value.2. Tom earned $120 in interest on his savings account last year. Tom has decided to leave the $120 in his account so that he can earn interest on the $120 this year. This process of earning interest on prior interest earnings is called: A. discounting.B
3、. compounding.C. duplicating.D. multiplying.E. indexing.3. Jamie earned $180 in interest on her savings account last year. She has decided to leave the $180 in her account so that she can earn interest on the $180 this year. The interest Jamie earns this year on this $180 is referred to as: A. simpl
4、e interest.B. complex interest.C. accrued interest.D. interest on interest.E. discounted interest.Chapter 04 - Introduction to Valuation: The Time Value of Money4-24. Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested a
5、t the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as: A. simple interest.B. interest on interest.C. discounted interest.D.
6、complex interest.E. compound interest.5. By definition, a bank that pays simple interest on a savings account will pay interest: A. only at the beginning of the investment period.B. on interest.C. only on the principal amount originally invested.D. on both the principal amount and the reinvested int
7、erest.E. only if all previous interest payments are reinvested.6. Sue needs to invest $3,626 today in order for her savings account to be worth $5,000 six years from now. Which one of the following terms refers to the $3,626? A. Present valueB. Compound valueC. Future valueD. Complex valueE. Factor
8、value7. Todd will be receiving a $10,000 bonus one year from now. The process of determining how much that bonus is worth today is called: A. aggregating.B. discounting.C. simplifying.D. compounding.E. extrapolating.Chapter 04 - Introduction to Valuation: The Time Value of Money4-38. The interest ra
9、te used to compute the present value of a future cash flow is called the: A. prime rate.B. current rate.C. discount rate.D. compound rate.E. simple rate.9. Computing the present value of a future cash flow to determine what that cash flow is worth today is called: A. compounding.B. factoring.C. time
10、 valuation.D. simple cash flow valuation.E. discounted cash flow valuation.10. Sara is investing $1,000 today. Which one of the following will increase the future value of that amount? A. Shortening the investment time periodB. Paying interest only on the principal amountC. Paying simple interest ra
11、ther than compound interestD. Paying interest only at the end of the investment period rather than throughout the investment periodE. Increasing the interest rate11. Sam wants to invest $5,000 for 5 years. Which one of the following rates will provide him with the largest future value? A. 5 percent
12、simple interestB. 5 percent interest, compounded annuallyC. 6 percent interest, compounded annuallyD. 7 percent simple interestE. 7 percent interest, compounded annuallyChapter 04 - Introduction to Valuation: The Time Value of Money4-412. Jenny needs to borrow $16,000 for 3 years. The loan will be r
13、epaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny? A. 8 percent simple interestB. 8 percent interest, compounded annuallyC. 8.5 percent simple interestD. 8.5 percent interest, compounded annuallyE. 9 percent interest, compounded annually13
14、. Which of the following will increase the future value of a lump sum investment? I. Decreasing the interest rateII. Increasing the interest rateIII. Increasing the time periodIV. Decreasing the amount of the lump sum investment A. I and III onlyB. I and IV onlyC. II and III onlyD. II and IV onlyE.
15、II, III, and IV only14. Which one of the following is the correct formula for the future value of $500 invested today at 7 percent interest for 8 years? A. FV = $500/(1 + 0.08) 7B. FV = $500/(1 + 0.07) 8C. FV = $500/(0.07 8)D. FV = $500 (1 + 0.07)8E. FV = $500 (1 + 0.08)715. Given an interest rate o
16、f zero percent, the future value of a lump sum invested today will always: A. remain constant, regardless of the investment time period.B. decrease if the investment time period is shortened.C. decrease if the investment time period is lengthened.D. be equal to $0.E. be infinite in value.Chapter 04
17、- Introduction to Valuation: The Time Value of Money4-516. Terry invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested? A. Terry will earn the same amount of interest each year.B. Terry coul
18、d have the same future value and invest less than $2,000 initially if he could earn more than 6.5 percent interest.C. Terry will earn an increasing amount of interest each and every year even if he should decide to withdraw the interest annually rather than reinvesting the interest.D. Terrys interes
19、t for year two will be equal to $2,000 0.065 2.E. Terry will be earning simple interest.17. Which of the following will decrease the future value of a lump sum investment made today assuming that all interest is reinvested? Assume the interest rate is a positive value. I. Increase in the interest ra
20、teII. Decrease in the lump sum amountIII. Increase in the investment time periodIV. Decrease in the investment time period A. I and III onlyB. I and IV onlyC. I, II, and III onlyD. II and III onlyE. II and IV only18. Which one of the following will increase the present value of a lump sum future amo
21、unt? Assume the interest rate is a positive value and all interest is reinvested. A. Increase in the time periodB. Increase in the interest rateC. Decrease in the future valueD. Decrease in the interest rateE. None of the aboveChapter 04 - Introduction to Valuation: The Time Value of Money4-619. Jef
22、f deposits $3,000 into an account which pays 2.5 percent interest, compounded annually. At the same time, Kurt deposits $3,000 into an account paying 5 percent interest, compounded annually. At the end of three years: A. Both Jeff and Kurt will have accounts of equal value.B. Kurt will have twice th
23、e money saved that Jeff does.C. Kurt will earn exactly twice the amount of interest that Jeff earns.D. Kurt will have a larger account value than Jeff will.E. Jeff will have more money saved than Kurt.20. Lisa has $1,000 in cash today. Which one of the following investment options is most apt to dou
24、ble her money? A. 6 percent interest for 3 yearsB. 12 percent interest for 5 yearsC. 7 percent interest for 9 yearsD. 8 percent interest for 9 yearsE. 6 percent interest for 10 years21. Which one of the following is the correct formula for computing the present value of $600 to be received in 6 year
25、s? The discount rate is 7 percent. A. PV = $600 (1 + 6)7B. PV = $600 (1 + 0.07)6C. PV = $600 (0.07 6)D. PV = $600/(1 + 0.07)6E. PV = $600/(1 + 6)0.0722. Centre Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Country Bank pays 2.5 percent simple interest on its savings a
26、ccounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today: A. is the same regardless of which bank you choose because they both pay compound interest.B. is the same regardless of which bank you choose becaus
27、e they both pay simple interest.C. is the same regardless of which bank you choose because the time period is the same for both banks.D. will be greater if you invest with Centre Bank.E. will be greater if you invest with Country Bank.Chapter 04 - Introduction to Valuation: The Time Value of Money4-
28、723. The present value of a lump sum future amount: A. increases as the interest rate decreases.B. decreases as the time period decreases.C. is inversely related to the future value.D. is directly related to the interest rate.E. is directly related to the time period.24. The relationship between the
29、 present value and the time period is best described as: A. direct.B. inverse.C. unrelated.D. ambiguous.E. parallel.25. Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000 back some time in the future. Which one of the following statements is correct? A. The period of
30、time she has to wait until she reaches her goal is unaffected by the compounding of interest.B. The lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal.C. She will have to wait longer if she earns 6 percent compound interest instead of 6 percent simple
31、interest.D. The length of time she has to wait to reach her goal is directly related to the interest rate she earns.E. The period of time she has to wait decreases as the amount she invests today increases.26. Which one of the following is a correct statement, all else held constant? A. The present
32、value is inversely related to the future value.B. The future value is inversely related to the period of time.C. The period of time is directly related to the interest rate.D. The present value is directly related to the interest rate.E. The future value is directly related to the interest rate.Chap
33、ter 04 - Introduction to Valuation: The Time Value of Money4-827. You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 8 percent interest. Approximately how long must you wait for your investment to double in value? A. 6 yearsB. 7 yearsC. 8
34、 yearsD. 9 yearsE. 10 years28. Today, you deposit $2,400 in a bank account that pays 4 percent simple interest. How much interest will you earn over the next 5 years? A. $96.00B. $101.15C. $480.00D. $492.16E. $519.9729. Your parents just gave you a gift of $15,000. You are investing this money for 1
35、2 years at 5 percent simple interest. How much money will you have at the end of the 12 years? A. $15,750B. $16,000C. $17,375D. $24,000E. $26,93830. Precision Engineering invested $110,000 at 6.5 percent interest, compounded annually for 4 years. How much interest on interest did the company earn ov
36、er this period of time? A. $2,481.25B. $2,911.30C. $3,014.14D. $3,250.00E. $3,333.33Chapter 04 - Introduction to Valuation: The Time Value of Money4-931. Roger just deposited $13,000 into his account at Market Place Bank. The bank will pay 2.3 percent interest, compounded annually, on this account.
37、How much interest on interest will he earn over the next 15 years? A. $638.16B. $799.28C. $821.03D. $906.15E. $923.7032. Ben invested $5,000 twenty years ago with an insurance company that has paid him 5 percent simple interest on his funds. Charles invested $5,000 twenty years ago in a fund that ha
38、s paid him 5 percent interest, compounded annually. How much more interest has Charles earned than Ben over the past 20 years? A. $0B. $2,109.16C. $3,266.49D. $7,109.16E. $8,266.4933. Scott has $4,800 that he wants to invest for 3 years. He can invest this amount at his credit union and earn 4 perce
39、nt simple interest. Or, he can open an account at Trust Bank and earn 3.65 percent interest, compounded annually. If he decides to invest at Trust Bank for 3 years, he will: A. earn $15.02 more than if he had invested with his credit union.B. earn $30.98 less than if he had invested with his credit
40、union.C. earn the same amount as if he had invested with the credit union.D. have a total balance of $4,992 in his account after one year.E. have a total balance of $4,876 in his account after one year.34. What is the future value of $4,900 invested for 8 years at 7 percent compounded annually? A. $
41、8,397.74B. $8,419.11C. $8,511.15D. $8,513.06E. $8,520.22Chapter 04 - Introduction to Valuation: The Time Value of Money4-1035. Elaine has just received an insurance settlement of $25,000. She wants to save this money until her daughter goes to college. If she can earn an average of 6.5 percent, comp
42、ounded annually, how much will she have saved when her daughter enters college 8 years from now? A. $38,000.00B. $40,929.02C. $41,374.89D. $41,899.60E. $42,000.0036. Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 2
43、6 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account? A. $129,411.20B. $132,827.88C. $134,616.56D. $141,
44、919.67E. $142,003.1237. Thirteen years ago, you deposited $2,400 into an account. Eight years ago, you added an additional $1,000 to this account. You earned 8 percent, compounded annually, for the first 5 years and 5.5 percent, compounded annually, for the last 8 years. How much money do you have in your account today? A. $4,666.67B. $4,717.29C. $5,411.90D. $6,708.15E. $6,946.59
