# Fundamentals of Financial Management Study Set 1

Business

## Quiz 5 :

Time Value of Money

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Q01

Starting to invest early for retirement increases the benefits of compound interest.

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True False

True

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Q02

Starting to invest early for retirement reduces the benefits of compound interest.

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True False

False

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Q03

A time line is meaningful even if all cash flows do not occur annually.

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True False

True

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Q04

A time line is not meaningful unless all cash flows occur annually.

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True False

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Q05

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

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True False

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Q06

Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.

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True False

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Q07

Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods.

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True False

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Q08

Time lines cannot be constructed for annuities unless all the payments occur at the end of the periods.

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True False

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Q09

Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts.

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True False

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Q10

Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.

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True False

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Q11

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

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True False

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Q12

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.

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True False

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Q13

Disregarding risk,if money has time value,it is impossible for the present value of a given sum to exceed its future value.

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True False

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Q14

Disregarding risk,if money has time value,it is impossible for the future value of a given sum to exceed its present value.

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True False

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Q15

If a bank compounds savings accounts quarterly,the nominal rate will exceed the effective annual rate.

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True False

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Q16

If a bank compounds savings accounts quarterly,the effective annual rate will exceed the nominal rate.

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True False

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Q17

The greater the number of compounding periods within a year,then (1)the greater the future value of a lump sum investment at Time 0 and (2)the greater the present value of a given lump sum to be received at some future date.

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True False

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Q18

The greater the number of compounding periods within a year,then (1)the greater the future value of a lump sum investment at Time 0 and (2)the smaller the present value of a given lump sum to be received at some future date.

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True False

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Q19

Suppose Sally Smith plans to invest $1,000.She can earn an effective annual rate of 5% on Security A,while Security B has an effective annual rate of 12%.After 11 years,the compounded value of Security B should be more than twice the compounded value of Security A.(Ignore risk,and assume that compounding occurs annually. )

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True False

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Q20

Suppose Randy Jones plans to invest $1,000.He can earn an effective annual rate of 5% on Security A,while Security B has an effective annual rate of 12%.After 11 years,the compounded value of Security B should be somewhat less than twice the compounded value of Security A.(Ignore risk,and assume that compounding occurs annually. )

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True False