Question 10 For a given interest rate, the future value of $100 increases with t

Question

Question 10

For a given interest rate, the future value of $100 increases with the passage of time. Thus the longer the period of time, the greater the future value.

True or False?

Question 11

Everything else being equal, the lower the discount rate, the higher the present value.

True or False?

Question 12

Everything else being equal, the longer the period of time, the lower the present value.

True or False?

Question 13

John just inherited $100,000 from his Aunt Emma. He wants to retire in 25 years. John has decided to put the entire amount in a savings account paying 6% interest. This is an example of:

a. present value of a lump sum

b. present value of an annuity

c. future value of a lump sum

d. future value of an annuity

Question 14

A term associated with future value is "compounding"; a term associated with present value is "discounting".

a. True

b. False

c. OK, if you can't make up your mind: none of the above

d. There is no "d" but this stupid program won't let me have only three answers. A note to students: this is NOT the correct answer - don't even try it! J

Question 15

As the interest rate increases for any given period, the future value interest factor will

a. decrease

b. increase

c. remain unchanged

d. approach 1.0

Question 16

For a given interest rate, as the length of time until receipt of funds increases, the present value interest factor

a. changes proportionally

b. increases

c. decreases

d. remains unchanged

Explanation / Answer

10

FV = PV*(1+r)^n

More the n greater is the (1+r)^n component thus greater is the FV, hence true.

11

PV = FV/(1+r)^n

Lower the r lower is (1+r)^n greater is FV/(1+r)^n and thus the PV

Hence true

12

PV = FV/(1+r)^n

greater the greater is (1+r)^n lower is FV/(1+r)^n and thus the PV

Hence true

13

C future value of lumpsum. John will receive the future value of the lump sum amount invested today after 25 years

Please answer remaining questions seperately

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