financial management Essay Example
Chapter 09 The Time Value of Money Answer Key
True / False Questions
1. An amount of money to be received in the future is worth less today than the stated amount.
TRUE
2. Discounting refers to the growth process that turns $1 today into a greater value several periods in the future.
FALSE
3. Compounding refers to the growth process that turns $1 today into a greater value several periods in the future.
TRUE
4. The interest factor for the future value of a single sum is equal to (1 + n)i.
FALSE
5. The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.
FALSE
6. If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to the future value of $1 table.
TRUE
7. The time value of money concept is fundamental to the analysis of cash inflow and outflow decisions covering periods of over one year.
TRUE
8. The future value is the same concept as the way money grows in a bank account.
TRUE
9. Cash flow decisions that ignore the time value of money will probably not be as accurate as those decisions that do rely on the time value of money.
TRUE
10. The present value of a positive future inflow can become negative as discount rates become higher and higher.
FALSE
11. The interest factor for a future value (FVIF) is equal to (1 + i)n.
TRUE
12. The formula PV = FV(1 + n)i will determine the present value of $1.
FALSE
13. In determining the interest factor (IF) for the present value of $1, one could use the reciprocal of the IF for the future value of $1 at the same rate and time period.
TRUE
14. To determine the current worth of 4 annual payments of $1,000 at 4%, one would refer to a table for the present value of $1.
FALSE
15. As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
FALSE
16. The interest factor for the present
True / False Questions
1. An amount of money to be received in the future is worth less today than the stated amount.
TRUE
2. Discounting refers to the growth process that turns $1 today into a greater value several periods in the future.
FALSE
3. Compounding refers to the growth process that turns $1 today into a greater value several periods in the future.
TRUE
4. The interest factor for the future value of a single sum is equal to (1 + n)i.
FALSE
5. The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.
FALSE
6. If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to the future value of $1 table.
TRUE
7. The time value of money concept is fundamental to the analysis of cash inflow and outflow decisions covering periods of over one year.
TRUE
8. The future value is the same concept as the way money grows in a bank account.
TRUE
9. Cash flow decisions that ignore the time value of money will probably not be as accurate as those decisions that do rely on the time value of money.
TRUE
10. The present value of a positive future inflow can become negative as discount rates become higher and higher.
FALSE
11. The interest factor for a future value (FVIF) is equal to (1 + i)n.
TRUE
12. The formula PV = FV(1 + n)i will determine the present value of $1.
FALSE
13. In determining the interest factor (IF) for the present value of $1, one could use the reciprocal of the IF for the future value of $1 at the same rate and time period.
TRUE
14. To determine the current worth of 4 annual payments of $1,000 at 4%, one would refer to a table for the present value of $1.
FALSE
15. As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
FALSE
16. The interest factor for the present