Time Value of Money

Time‑value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today.

• TRUE

• FALSE

Future value is the value of a future amount at the present time, found by applying compound interest over a specified period of time.

• TRUE

• FALSE

Interest earned on a given deposit that has become part of the principal at the end of a specified period is called compound interest.

• TRUE

• FALSE

Annuity due is an amount that occurs at the beginning of each period.

• TRUE

• FALSE

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.

• TRUE

• FALSE

The nominal (stated) annual rate is the rate of interest actually paid or earned.

• TRUE

• FALSE

In future value or present value problems, unless stated otherwise, cash flows are assumed to be

• at the end of a time period.

• at the beginning of a time period.

• spread out evenly over a time period.

When the amount earned on a deposit has become part of the principal at the end of a specified time period the concept is called

• discount interest.

• compound interest.

• future value.

As the interest rate increases for any given period, the future value interest factor will

• decrease.

• increase.

• remain unchanged.

The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called

• future value.

• present value.

• annuity due