Corporate Finance - Week 1 MCQs

What does the Time Value of Money (TVM) principle state?

• A dollar tomorrow is worth more than a dollar today.

• A dollar today is worth more than a dollar tomorrow.

• Money does not lose value over time.

• Interest rates remain constant over time.

If you invest $100 at 10% annual interest, what is the value after 3 years with compounding?

• $120.00

• $130.00

• $133.10

• $150.00

What is the key feature of compounding interest?

• It only considers the principal amount.

• It includes interest on interest.

• It provides lower returns than simple interest.

• It is used only for short-term loans.

If 6% annual interest is compounded quarterly, what is the effective interest rate (EIR)?

• 6.00%

• 6.10%

• 6.14%

• 6.25%

What formula is used to calculate the Effective Interest Rate (EIR)?

• EIR = r × m

• EIR = (1 + r)^n

• EIR = (1 + r/m)^m − 1

• EIR = PV / FV

Which of the following is NOT true about multiple cash flows?

• Each cash flow must be compounded individually.

• All cash flows occur at the same time.

• Future value is the sum of each compounded cash flow.

• Different timing of cash flows affects the total future value.