Miniquiz

The further in the future you receive a dollar, the more it is worth today.

• false

• true

• not clear

The higher the rate of interest, the more likely you will elect to invest your funds and forgo current consumption.

• not clear

• false

• true

The process of converting the initial amount into future value is called discounting.

• false

• true

• not clear

The growth in the future value of an investment over time is not linear, but exponential.

• not clear

• true

• false

If Bank A pays interest on a monthly basis and Bank B pays the same interest on a quarterly basis, then investing $1,000 in Bank B will lead to a higher future value than investing the same amount in Bank A.

• false

• not clear

• true

The future value factor for 10 years at 15% is calculated as (1 + 0.15)¹⁰.

• false

• true

• not clear

The higher the discount rate, the lower the present value of a future cash flow.

• false

• true

• not clear

The effective annual interest rate (EAR) is the true cost of borrowing and lending.

 

 

• not clear

• true

• false

If you had a choice of choosing a payment of $5,000 to be received in five years being discounted at 8 percent or at 10 percent, you should always choose the higher rate because it gives you the higher present value.

• incomplete information

• true

• not clear

• false

The time value of money refers to the issue of:

• why a dollar received tomorrow is worth more than a dollar received today.

• what the time required to double an amount of money.

• what the value of the stream of future cash flows is today.

• why people prefer to consume things at some time in the future rather than today.