Description
Test Bank For Principles of Managerial Finance 8th Edition by Chad J. Zutter
Principles of Managerial Finance, Brief Ed., 8e (Zutter/Smart)
Chapter 5 Time Value of Money
5.1 The role of time value in finance
1) The main idea behind the time value of money is that a dollar today is worth more than a
dollar in the future because ________.
A) inflation erodes the value of money over time
B) investors can earn a return on money they have today and thereby have more money in the
future
C) the future is more uncertain than the present
D) investors are impatient
Answer: B
Diff: 1
Topic: Basic Time Value Concepts
Learning Obj.: LG 1
Learning Outcome: F-03
AACSB: Reflective Thinking
2) You invest a certain amount of money today. The process of determining how much money
that investment will produce in the future is called ________.
A) discounting
B) compounding
C) present value
D) annuitizing the cash flow
Answer: B
Diff: 1
Topic: Basic Time Value Concepts
Learning Obj.: LG 1
Learning Outcome: F-03
AACSB: Reflective Thinking
3) The process of taking cash flow that is received or paid in the future and stating that cash flow
in present value terms is called discounting.
Answer: TRUE
Diff: 1
Topic: Basic Time Value Concepts
Learning Obj.: LG 1
Learning Outcome: F-03
AACSB: Reflective Thinking2
Copyright © 2019 Pearson Education, Inc.
4) A certain investment that costs $10,000 today promises to pay you $10,500 in five years. This
investment ________.
A) is unambiguously a good investment
B) is unambiguously a bad investment
C) may be a good investment if the rate of return you can earn an alternative investments is very
low
D) may be a good investment if the rate of return you can earn on alternative investments is very
high
Answer: C
Diff: 1
Topic: Basic Time Value Concepts
Learning Obj.: LG 1
Learning Outcome: F-03
AACSB: Reflective Thinking
5) Since individuals generally have opportunities to earn positive rates of return on their funds,
the timing of cash flows does not have any significant economic consequences.
Answer: FALSE
Diff: 1
Topic: Role of Time Value in Finance
Learning Obj.: LG 1
Learning Outcome: F-03
AACSB: Analytical Thinking
6) The time value of money is based on the belief that a dollar that will be received at some
future date is worth more than a dollar today.
Answer: FALSE
Diff: 1
Topic: Role of Time Value in Finance
Learning Obj.: LG 1
Learning Outcome: F-03
AACSB: Analytical Thinking
5.2 Single amounts
1) For any positive 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.
Answer: TRUE
Diff: 1
Topic: Future Value
Learning Obj.: LG 2
Learning Outcome: F-03
AACSB: Analytical Thinking3
Copyright © 2019 Pearson Education, Inc.
2) Future value is the value of a future amount at the present time, found by applying compound
interest over a specified period of time.
Answer: FALSE
Diff: 1
Topic: Future Value
Learning Obj.: LG 2
Learning Outcome: F-03
AACSB: Analytical Thinking
3) The greater the interest rate and the longer the period of time, the higher the present value.
Answer: FALSE
Diff: 1
Topic: Present Value
Learning Obj.: LG 2
Learning Outcome: F-03
AACSB: Analytical Thinking
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