Test Bank For M Finance 3rd Edition By Cornett

Chapter 04

Time Value of Money 1: Analyzing Single Cash Flows

Multiple Choice Questions
1.

Which of the following is NOT true when developing a time line?
A. Cash inflows are designated with a positive number.

B. Cash outflows are designated with a positive number.

C. The cost is known as the interest rate.

D. The time line shows the magnitude of cash flows at different points in time.

2.

People borrow money because they expect:
A. their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan.

B. the time value of money to apply only if they are saving money.

C. interest rates to rise.

D. that consumers don’t need to calculate the impact of interest on their purchases.

3.

How are future values affected by changes in interest rates?
A. The lower the interest rate, the larger the future value will be.

B. The higher the interest rate, the larger the future value will be.

C. Future values are not affected by changes in interest rates.

D. One would need to know the present value in order to determine the impact.

4.

How are present values affected by changes in interest rates?
A. The lower the interest rate, the larger the present value will be.

B. The higher the interest rate, the larger the present value will be.

C. Present values are not affected by changes in interest rates.

D. One would need to know the future value in order to determine the impact.

5.

We call the process of earning interest on both the original deposit and on the earlier interest payments:
A. discounting.

B. multiplying.

C. compounding.

D. computing.

6.

The process of figuring out how much an amount that you expect to receive in the future is worth today is called:
A. discounting.

B. multiplying.

C. compounding.

D. computing.

7.

The interest rate, i, which we use to calculate present value, is often referred to as the:
A. discount rate.

B. multiplier.

C. compound rate.

D. dividend.

8.

The Rule of 72 is a simple mathematical approximation for:
A. the present value required to double an investment.

B. the future value required to double an investment.

C. the payments required to double an investment.

D. the number of years required to double an investment.

9.

With regard to money deposited in a bank, future values are:
A. smaller than present values.

B. larger than present values.

C. equal to future values.

D. are completely independent of present values.

10.

A dollar paid (or received) in the future is:
A. worth more than a dollar paid (or received) today.

B. worth as much as a dollar paid (or received) today.

C. not worth as much as a dollar paid (or received) today.

D. not comparable to a dollar paid (or received) today.