True or False: Time Value of Money and Interest
12 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

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?

  • Nominal interest
  • Compound interest (correct)
  • Simple interest
  • Effective interest

    • 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?

    <p>The interest earned in multiple periods</p> Signup and view all the answers

    What is the definition of an annuity?

    <p>A series of investments made at equal intervals of time</p> Signup and view all the answers

    How is the future value of an amount determined?

    <p>By multiplying the present value by the future value factor</p> Signup and view all the answers

    The present value of an investment is the same as its compound amount.

    <p>False</p> Signup and view all the answers

    The time value of money analysis always applies the concept of compound interest.

    <p>False</p> Signup and view all the answers

    The interest is computed every month in a simple interest computation.

    <p>False</p> Signup and view all the answers

    The nominal rate of interest is expressed on an annual basis.

    <p>False</p> Signup and view all the answers

    The compounding period can be daily.

    <p>False</p> Signup and view all the answers

    An annuity implies a series of investments made at equal intervals of time, regardless of the amount involved.

    <p>True</p> Signup and view all the answers

    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.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    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.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser