Compound Interest and Rate

CHAPTER 5
TIME VALUE OF MONEY
(Difficulty Levels: Easy, Easy/Medium, Medium, Medium/Hard, and Hard)

Please see the preface for information on the AACSB letter indicators (F, M, etc.) on the subject lines. Multiple Choice: True/False
(5-2) Compounding
1.

F J

Answer: aEASY

Starting to invest early for retirement increases the benefits of compound interest.
a. True
b. False

(5-2) Compounding
2.

F J

Answer: bEASY

Starting to invest early for retirement reduces the benefits of compound interest.
a. True
b. False

(5-2) Compounding
3.

F J

Answer: aEASY

A time line is meaningful even if all cash flows do not occur annually.
a. True
b. False

(5-2) Compounding
4.

F J

Answer: bEASY

A time line is not meaningful unless all cash flows occur annually.
a. True
b. False

(5-2) Compounding
F J
Answer: aEASY
5.
Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.
a. True
b. False
(5-2) Compounding
6.

F J

Answer: bEASY

Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
a. True
b. False

Chapter 5: Time Value of Money

True/False

Page 137

(5-2) Compounding
7.

F J

Answer: aEASY

Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.
a. True
b. False

(5-2) Compounding
8.

F J

Answer: bEASY

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.
a. True
b. False

(5-2) Compounding
9.

F J

Answer: aEASY

Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts.
a. True
b. False

(5-2) Compounding
10.

F J

Answer: bEASY

Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.
a.