Time Value of Money I >> Finance for Everyone: Decisions
TOTAL POINTS 10
1. The present value of future cash flows increases if:
I. the interest rate decreases
II. the amounts occur closer to time zero
III. the compounding frequency increases
IV. the risk premium increases
1 point
2.You invested $1,000 today at 4% compounded annually. How much interest was earned in year 5?
1 point
3.If a rate of return (r) and a time period (t) are greater than zero, then the:
I. Present value interest factors are less than one
II. Future value interest factors are less than one
III. Present value interest factors are greater than future value interest factors
IV. Present value interest factors grow as t grows, provided r is held consta
2 points
4.Grandma’s life savings of $100,000 earn 4% in a trust fund. You can’t withdraw the money until the amount has doubled.
How long will you have to wait until you can withdraw funds? Round off to the nearest year:
2 points
5.Beginners luck earned you $1,500 at the Casino when you were 26 years old. You used the $1,500 to buy shares in a 3D printing start-up company, which are worth $57,785.58 today.
If you are 57 years old today, what is your average annual rate of return? (Hint, what is the annual compounded interest rate?)
2 points
6.Suppose the nominal rate based is 7%, which is compounded monthly. Assuming the same effective rate of interest, what is the nominal rate based on quarterly compounding?
2 points
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