Time Value of Money (lump sums)

Which of the following is true according to the Time Value of Money?

• a dollar today is worth more than a dollar tomorrow

• a dollar today is worth less than a dollar tomorrow

• a dollar tomorrow is worth more than a dollar today

• a dollar tomorrow is worth less than a dollar today

Which of the following is true?

• The higher the interest rate, the lower the future value

• The lower the interest rate, the higher the present value

• The longer the time, the higher the future value

• The longer the time, the higher the present value

Your grandparents put $1,000 into a savings account for you when you were born 20 years ago. This account has been earning interest at a compound rate of 7% p.a. What is its value today?

• $1,967

• $3,026

• $3,870

• $3,934

If a term deposit paid a compound interest rate of 5.8% p.a. over the past two years, and the current balance is $3,250, what was the amount initially invested?

• $1,535.92

• $2,903.43

• $3,071.83

• $3,637.93

John invests $17,843.09 today at a compound rate of 9 percent per year and then in the future receives $100,000. How many years did he have to wait for $100,000?

• 1.08 years

• 1.58 years

• 13.36 years

• 20.00 years

Sharon is considering an investment whereby she invests $3,000 now and receives $10,927.45 in ten years. What compound rate of interest per annum does this offer?

• 1.14%

• 2.64%

• 13.80%

• 14.00%

Given a fixed future value, which of the following will contribute to a lower present value?

• More frequent compounding

• Less time periods

• Lower discount rate

• All of the above

A $10,000 university tuition fund has a rate of interest of 12% p.a. compounded monthly. What will the value of the fund be in five years?

• $16,122.26

• $17,623.42

• $18,170.00

• $18,710.00

An investment opportunity promises to provide you with a payment of $200,000 at the end of 20 years. If you require an annual return of 8%p.a. compounded quarterly on this investment, what is the most you should be willing to pay for this opportunity today?

• $10,000.00

• $41,021.95

• $42,909.64

• $76,923.08

Calculate the effective annual interest rate corresponding to 16% p.a., compounded quarterly.

• 10.29%

• 16.00%

• 16.49%

• 16.99%