Question 14 A term associated with future value is \"compounding\"; a term assoc

Question

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

Q14: (a) True. [The FV of 100 at compounding rate 10% after one year is 110 and PV of 110 at a discount rate of 10% is 100.]

Q15: (b) Increase. [ future value interest factor =(1+i)^n , where i=interest , n=number of years. When i increases, the factor increases]

Q16: (c) Decreases [ present value interest factor=1/((1+i)^n) , so as n increases , the value of the factor decreases]

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