chap005 - Chapter 005 Introduction to Valuation: The Time...

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Chapter 005 Introduction to Valuation: The Time Value of Money Multiple Choice Questions 1. The amount an investment will be worth after one or more periods of time is the _____ value. A . future b. present c. principal d. discounted e. simple SECTION: 5.1 TOPIC: FUTURE VALUE TYPE: DEFINITIONS 2. The process of accumulating interest on an investment over time to earn more interest is called: a. growth. B . compounding. c. aggregation. d. accumulation. e. discounting. SECTION: 5.1 TOPIC: COMPOUNDING TYPE: DEFINITIONS 3. Interest earned on the reinvestment of previous interest payments is called _____ interest. a. free b. annual c. simple D . interest on e. compound SECTION: 5.1 TOPIC: INTEREST ON INTEREST TYPE: DEFINITIONS 5-1
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Chapter 005 Introduction to Valuation: The Time Value of Money 4. Interest earned on both the initial principal and the interest reinvested from prior periods is called _____ interest. a. free b. annual c. simple d. interest on E . compound SECTION: 5.1 TOPIC: COMPOUND INTEREST TYPE: DEFINITIONS 5. Interest earned only on the original principal amount invested is called _____ interest. a. free b. annual C . simple d. interest on e. compound SECTION: 5.1 TOPIC: SIMPLE INTEREST TYPE: DEFINITIONS 6. The future value interest factor is computed as: A . (1 + r) t . b. (1 + rt). c. (1 + r) t. d. 1 + r t. e. (1+ r) r t . SECTION: 5.1 TOPIC: FUTURE VALUE INTEREST FACTOR TYPE: DEFINITIONS 5-2
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Chapter 005 Introduction to Valuation: The Time Value of Money 7. The value today of future cash flows discounted at the appropriate discount rate is called the _____ value. a. principal b. future C . present d. simple e. compound SECTION: 5.2 TOPIC: PRESENT VALUE TYPE: DEFINITIONS 8. The process of finding the present value of some future amount is commonly called: a. growth. B . discounting. c. accumulation. d. compounding. e. reduction. SECTION: 5.2 TOPIC: DISCOUNTING TYPE: DEFINITIONS 9. The present value interest factor is computed as: a. 1 / (1 + r t). b. 1 / (1 + rt). c. 1 / (1 + r) t. D . 1 / (1 + r) t . e. 1 + r + t. SECTION: 5.2 TOPIC: PRESENT VALUE INTEREST FACTOR TYPE: DEFINITIONS 5-3
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Chapter 005 Introduction to Valuation: The Time Value of Money 10. The interest rate used to calculate the present value of future cash flows is called the _____ rate. a. free b. annual c. compound d. simple E . discount SECTION: 5.2 TOPIC: DISCOUNT RATE TYPE: DEFINITIONS 11. As the discount rate increases, the present value of $2,000 to be received four years from now: a. remains constant. b. also increases. C . decreases. d. becomes negative. e. will vary but the direction of the change is unknown. SECTION: 5.2 TOPIC: PRESENT VALUE AND DISCOUNT RATE TYPE: CONCEPTS 12. Jeff is going to receive $10,000 five years from now. Tammy is going to receive $10,000 eight years from now. Which one of the following statements is correct if both Tammy and Jeff apply a 6 percent discount rate to these amounts? a. The present value of Tammy's and Jeff's money will be equal. b. The value of Jeff's money will be less than the value of Tammy's money 15 years from
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This note was uploaded on 03/23/2011 for the course ECON 202098 taught by Professor Sameer during the Spring '11 term at University of Jordan.

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chap005 - Chapter 005 Introduction to Valuation: The Time...

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