Question

1. The future value of a present sum increases as either the discount rate or the number of periods per year increases, other things held constant.

True or False

2.It is always desirable to have a higher compounding frequency, regardless of the initial investment or the time horizon.

True or False

3.A perpetuity is a level stream of evenly spaced cash flows that never ends.

True or False

Answer #1

1. The future value of a present sum increases as either the discount rate or the number of periods per year increases, other things held constant.

TRUE

FV = PV * (1 + r)^n

As r and n increases the future value increases

2.It is always desirable to have a higher compounding frequency, regardless of the initial investment or the time horizon.

TRUE

As the compounding frequency increases, our initial investment is worth more in the future.

3.A perpetuity is a level stream of evenly spaced cash flows that never ends.

TRUE

A perpetuity has cash flows that are equal and occurs at evenly spaced intervals and cash flows continue forever.

The present value of a single sum:
Group of answer choices
increases as the discount rate decreases
increases as the discount rate increases
increases as the number of discount periods increases
increases as the number of discount periods increases and as the
discount rate decreases

True or False
1. Suppose you are given a positive discount (or
interest/compound) rate. If you calculated the PV (present value)
of a series of equal cash flows, it will always exceed the FV
(future value) of the same series of cash flows.
2. All else equal, the PV (present value) of an annual ordinary
annuity (i.e cash flows only happen at end of each year) increases
as the frequency of compounding (# of periods per year)
increases.
3. It...

Finding a present value is the reverse of finding a future
value.
Discounting is the process of
calculating the present value of a cash flow or a series of cash
flows to be received in the future.
Which of the following investments that pay will $19,000 in 14
years will have a higher price today?
a)The security that earns an interest rate of 7.00%.
b) The security that earns an interest rate of 10.50%.
Eric wants to invest in government...

1 As the interest rate increases, the present value of an
annuity decreases. Group of answer choices False True
2 As the number of periods N increases, the future value
of a savings account increases.
Group of answer choices
True
False
3
Forty years ago, Jordan purchased an investment for
$10,000. The investment earned 5 percent rate of return each year.
What is the worth of the investment today?
Group of answer choices
73,584.17
70,399.89
400,000.00
151,090.21

True or False: The sum of the present value discount factors for
1...n years equals the present value factor for an annuity at year
n.

Suppose you are given a positive discount (or interest/compound)
rate. If you calculated the PV (present value) of a series of equal
cash flows, it will always exceed the FV (future value) of the same
series of cash flows. True or False?

Which of the following statements is false?
a. If the discount (or interest) rate is positive, the future
value of an expected series of payments will always exceed the
present value of the same series.
b. To increase present consumption beyond present income
normally requires either the payment of interest or else an
opportunity cost of interest foregone.
c. Disregarding risk, if money has time value, it is impossible
for the present value of a given sum to be greater...

True or False
1.
The “future value” technique uses a process called “discounting” to
calculate the future value of each cash flow at the end of an
investment’s life.
2.
An “annuity due” will always have a greater value than an otherwise
equivalent “ordinary annuity,” because interest will compound for
an additional time period on the “annuity due.”
3.
Compounding interest more frequently than once per year results in
a higher “effective annual rate” (EAR) for an investor.
4.
When...

QUESTION 1:
Which of the following will decrease the present value of the
mixed cash flows for years 1 through 5 of $1,000; $4,000; $9,000;
$5,000; and $2,000 respectively given a 10% discount rate? (Choose
all that apply - this is an all or nothing problem; if you choose
an option that is wrong or do not choose an option that is correct,
your entire answer will be marked wrong).
Decrease the discount rate by 2%.
Switch cash flows for...

1. Which of the following statements is incorrect?
a. The time value of money implies that a dollar received today
is worth more than a dollar received tomorrow.
b. The time value of money implies that the further in the
future you receive a dollar, the more it is worth today.
c. All the answers are correct except one.
d. A dollar today is worth more than a dollar received in the
future.
e. The earnings from compounding drive much...

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