Reference no: EM132183993

Assignment

1. Individuals prefer to consume goods in the future rather than right away.
A) True
B) False

2. The further in the future you receive a dollar, the more it is worth today.
A) True
B) False

3. The higher the rate of interest, the more likely you will elect to invest your funds and forego current consumption.
A) True
B) False

4. The present value technique uses discounting to find the present value of each cash flow at the beginning of the period.
A) True
B) False

5. The present value technique uses compounding to find the present value of each cash flow at the beginning of the period.
A) True
B) False

6. The future value technique uses compounding to find the future value of each cash flow at the end of a period.
A) True
B) False

7. Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest as well as the principal.
A) True
B) False

8. The growth rate over time is linear.
A) True
B) False

9. The more frequently the interest payments are compounded, the larger the future value of $1 for a given time period.
A) True
B) False

10. If Bank A pays interest on a monthly basis and Bank B pays the same interest on a quarterly basis, then investing $1,000 in Bank B will lead to a higher future value than investing the same amount in Bank A.
A) True
B) False

11. The higher the discount rate, the lower the present value of a future cash flow.
A) True
B) False

12. If you invest $7,500 today and that investment earns 6 percent interest, compounded quarterly, how much will your investment be worth in four years?

13. You estimate that a critical machine will need to be replaced in ten years at a cost of $450,000. Assuming a 7% interest rate, how much will you need to invest today so that you'll have enough to replace the machine?