TCDN C2

The basic principle of the time value of money states that:

• A dollar today is worth more than a dollar tomorrow

• A dollar today is worth less than a dollar tomorrow

• A dollar today has the same value as a dollar tomorrow

• Money has no time value

Simple interest is calculated on:

• The original principal only

• The original principal plus accumulated interest

• Accumulated interest only

• The sum of all previous interest

Which of the following best describes compound interest?

• Calculated on the original principal only

• Calculated on the principal and accumulated interest

• Used only for a single period of less than a year

• Used only for annual interest payments

The effective annual interest rate is always:

• Equal to the quoted rate

• Greater than or equal to the quoted rate

• Less than or equal to the quoted rate

• Less than the quoted rate

Future value measures the value of:

• An asset or cash at a specified date in the future

• An asset or cash at the current date

• Cash flows at the present value

• Cash flows received today

Which of the following formulas calculates the future value (FV)?

• FV = PV / (1 + r)ⁿ

• FV = PV × (1 + r)ⁿ

• FV = PV × (1 - r)ⁿ

• FV = PV × (1 + r)

Present value is defined as:

• The current value of an asset at a future date

• The value today of one or many future cash flows

• The value of an investment in the past

• The initial amount of money borrowed

The formula for present value (PV) is given as:

• PV = FV × (1 + r)ⁿ

• PV = FV / (1 + r)ⁿ

• PV = FV × (1 - r)ⁿ

• PV = FV / (1 - r)ⁿ

An annuity is best defined as:

• A series of unequal cash flows over time

• A stream of constant cash flows for a fixed number of periods

• A series of cash flows that grow at a constant rate

• A constant stream of cash flows that last forever

A perpetuity is:

• A series of cash flows lasting a limited number of periods

• A constant stream of cash flows that continues forever

• A stream of increasing cash flows that lasts forever

• A stream of decreasing cash flows that lasts for a fixed period