The Time Value of Money (Part II)

What is the primary characteristic of a geometric gradient cash flow?

• The cash flow increases or decreases by a fixed amount each period.
• The cash flow remains constant over time.
• The cash flow increases or decreases by a fixed percentage each period.
• The cash flow follows a random pattern over time.

A person saves $500 in the first year and increases their savings by 10% annually. How much will they have saved in total after 15 years?

• $15.885

• $12.500

• $18.000

• $10.000

Which of the following scenarios best represents a geometric gradient?

• A worker’s salary increases by $1,000 per year.
• A company’s revenue grows by 5% annually.
• A bank account earns fixed deposits each year without interest.
• A student receives a fixed scholarship amount each semester.

A geometric gradient increases or decreases by a fixed percentage, while a uniform series remains​ (a)   .

If two investment plans have the same first cash flow but one follows a uniform series and the other follows a geometric gradient with positive growth, which will have the higher future value?

• The geometric gradient, because future payments are larger due to compounding growth.

•  The uniform series, because it has equal payments.

• Both will have the same future value.

• It depends on the discount rate, not the growth pattern.

Suppose you own a machine, and maintenance costs start at $0 in the first year. After that, the maintenance cost increases by $100 each year. What is the maintenance cost for year 2?

• 100
• 200
• 300
• 400

A Uniform Gradient of Cash Flow is a cash flow model in which the amount increases or decreases by a (a)   amount each period

P = G*(..., i%, N)

• P/G
• A/G
• F/G
• P/A

How to find the present equivalent value of an increasing arithmetic gradient series?

• P₀T = P₀A + P₀G

• P₀T = P₀A - P₀G

• P₀T = G * (P/G, i%, N)

• P₀T = P * (G/P, i%, N)

What does “P” stand for?

• Annual equivalent value
• Present equivalent value
• Period
• Uniform gradient amount