Finance 310 Exam | Answered with complete solutions
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Course
Finance 310
Institution
Finance 310
Finance 310 Exam | Answered with complete solutions The value in t years of an investment made today at interest rate r is called the _________ of your investment. A: Present value B: Compound value C: Future value D: Simple value A dollar invested today at 8.0 percent interest compounded annuall...
The value in t years of an investment made today at interest rate r is called the
_________ of your investment.
A: Present value
B: Compound value
C: Future value
D: Simple value
A dollar invested today at 8.0 percent interest compounded annually will be worth
_________ three years from now.
A: $1.08
B: $1.1664
C: $1.2597
FV = $1.00 x (1 + 0.8)^3
A dollar invested today at 8.0 percent simple annual interest will be worth
__________three years from now.
A: $1.16
B: $1.26
C: $1.24
With simple interest, the bank calculates interest only on the principle investment: $1.00
+$.08+$0.8+$0.8 = $1.24. Do not confuse this with compound interest, which computes
interest earned on interest.
Assume you have $100 to invest today. Investing it at 5% interest compounded annually
will yield ________ in 10 years, while investing it at 6% interest compounded annually
will yield ___________ in 10 years.
Joseph signs a contract with a company that will pay him $25,000. Following the
principles of the time value of money, Joseph would be best off if he received payment:
A: at the beginning of the project
, B: At the end of the project
C: In 3 equal monthly sums
The time value of money states that a dollar today is worth more than a dollar tomorrow.
Therefore, if he received the $25,000 at the beginning of the project, he would have 3
months to invest his money and have it grow.
Compound growth means that value increases after 2 periods by:
A: growth rate^t
B: (1 + growth rate)^t
C: (1 - growth rate)^t
D: 1/ growth rate x t
The time value of money concept states that a dollar today is worth __________ a
dollar tomorrow.
A: more than
B: the same as
C: less than
Discounting a future value FV at interest rate r over time t is termed a
_______________ calculation
Another name for the interest rate used to calculate PV is the _________ rate.
A: federal funds
B: inflation
C: discount
D: money market
Which of the following is the correct formula for the discount factor?
A: 1/(1+r) x t
B: 1/(1+r)^t
C: (1+r)
D: 1/(1+4)
If the interest rate (r) increases, what will happen to present value (PV) over time?
A: PV will remain constant
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