Time value of money

The "time value of money" means that

• money paid out today less value than if the money is paid out in the future

• money received today is worth more than the same amount of money received in the future

• the more time a person has to save, the lower the return on the money

• the longer money is held, the less likely it will be spent

The amount of money a person expects to have in the future is called

• Principal

• Interest

• Present value

• Future value

Process of changing future value to the present value known as

• Compound

• Discount

• Simple interest

• Principal

Process of changing present value to the future value known as

• Principal

• Discount

• Simple interest

• Compound

Earning interest on interest is called

• Extra interest

• Inflation interest

• Simple interest

• Compound interest

Lisa wants to know what the value of her RM1,000 will be if she invests it for 3 years at a given rate. What is Lisa trying to find?

• Present value

• Future value

• Effective annual rate (EAR)

• Discount rate

Cash received today is preferred to cash received in the future

• True

• False

The formula for compound value is :

• FVn = PV (1+i)

• FVn = PV/(1+i)

• FVn = PV (1+i)ⁿ

• FVn = (1+i)/PV

Computing the future value of an amount of money for any specified time period requires knowledge of the amount of principal and the interest rate

• True

• False

The more frequently interest is compounded the greater the future value

• True

• False