Fin 240 - Quiz 2 (Time Value of Money) - AA

The lower is the compounding period, the higher is the effective rate of interest

• True

• False

One of the reasons for attributing time value to money is that individuals prefer future consumption to current consumption.

• True

• False

The nominal rate of interest is equal to the effective rate of interest when interest is compounded annually.

• True

• False

Given a principal amount of Rs. 10,000 to be invested for 1 year, it is better to invest in a scheme that offers 12% annual compound interest than investing in a scheme that earns 12% simple interest.

• True

• False

A bank that pays 10% interest compounded annually pays a higher effective rate of interest than a bank that pays 10% interest compounded quarterly.

• True

• False

Frequency of compounding has no effect on interest earned.

• True

• False

Present value of an uneven stream of cash flows can be calculated with the help of present value of annuity table.

• True

• False

While investing money it is always better to insist on a higher frequency of compounding.

• True

• False

The process of determining present value is often called discounting.

• True

• False

A perpetuity is an annuity that continues for 100 years

• True

• False