Podcast
Questions and Answers
Which of the following statements is true about the value of money?
Which of the following statements is true about the value of money?
- The value of money decreases over time. (correct)
- The value of money fluctuates randomly over time.
- The value of money increases over time.
- The value of money remains the same over time.
What is the primary concept applied in time value of money analysis?
What is the primary concept applied in time value of money analysis?
- Nominal interest
- Compound interest (correct)
- Simple interest
- Effective interest
How is the periodic interest rate computed?
How is the periodic interest rate computed?
- By subtracting the nominal interest rate from the compounding period
- By adding the nominal interest rate to the compounding period
- By multiplying the nominal interest rate by the compounding period (correct)
- By dividing the nominal interest rate by the compounding period
What does the term 'compounding' refer to in the context of interest?
What does the term 'compounding' refer to in the context of interest?
What is the definition of an annuity?
What is the definition of an annuity?
How is the future value of an amount determined?
How is the future value of an amount determined?
The present value of an investment is the same as its compound amount.
The present value of an investment is the same as its compound amount.
The time value of money analysis always applies the concept of compound interest.
The time value of money analysis always applies the concept of compound interest.
The interest is computed every month in a simple interest computation.
The interest is computed every month in a simple interest computation.
The nominal rate of interest is expressed on an annual basis.
The nominal rate of interest is expressed on an annual basis.
The compounding period can be daily.
The compounding period can be daily.
An annuity implies a series of investments made at equal intervals of time, regardless of the amount involved.
An annuity implies a series of investments made at equal intervals of time, regardless of the amount involved.
Study Notes
Time Value of Money
- The worth of ₱100 today is not equal to the worth of ₱100 after a year due to inflation and interest rates.
Interest Computation
- Time value of money analysis does not always apply the concept of simple interest; compound interest is also used.
- Simple interest computation does not necessarily compute interest once every year; it depends on the compounding period.
Compounding Interest
- Compounding interest means interest earns interest in subsequent periods.
Nominal Rate
- Nominal rate is the interest rate expressed per year, but can be converted to other compounding periods like semi-annual, quarterly, or monthly.
Compounding Period
- Compounding period can be annual, semi-annual, quarterly, or monthly.
- Periodic interest rate is calculated by multiplying the nominal interest rate by the number of compounding periods per year.
Future Value
- Future value of an amount is determined by multiplying the present value by the future value factor.
Annuity
- Annuity implies a series of equal investments made at equal intervals of time, regardless of the amount involved.
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Description
Test your understanding of time value of money and interest concepts with this true or false quiz. Covers simple interest, compounding interest, and more.
