Lesson 11 (Time value of money)

Question 1

measurement and recording of liabilities are based on the concept of ?

Answer 1

the time value of money

Question 2

time value of money = ?

Answer 2

compound interest

Question 3

earns interest on the principle invested
what is this ?

Answer 3

simple interest

Question 4

earns interest on both principal invested as well as all previously earned interest
what is this ?

Answer 4

compound interest

Question 5

1. future value of a lump sum
2. present value of a lump sum
3. future value of an annuity
4. present value of an annuity
   what are these ?

Answer 5

the four time value of money cases

Question 6

how much will todays dollar be worth in the future
which time value of money case is this ?

Answer 6

future value of a lump sum case

Question 7

the frequency with which interest is added to the principal
what is this ?

Answer 7

compounding

Question 8

you must divide i by the # of compounds per year and multiply n by # of compounds per year for what money cases ?

Answer 8

all time value of money cases

Question 9

as compounding frequency increases, what happens to the future value ?

Answer 9

it increases

Question 10

how much is a dollar received in the future worth today
which time value of money case is this ?

Answer 10

present value of a lump sum case

Question 11

As the compounding frequency increases what happened to the present value ?

Answer 11

it decreases

Question 12

time value of money examples had a single payment
what are these ?

Answer 12

lump sum

Question 13

a series of equal payment (either amounts to be received or paid) with each payment having the same time interval between them
what is this ?

Answer 13

annuity

Question 14

an annuity with payments occurring at the end of each period
what is this ?

Answer 14

ordinary annuity

Question 15

an annuity with payments occurring at the beginning of each period
what is this ?

Answer 15

annuity due

Question 16

how much is a dollar received at the end of every year for 4 years worth at the end of the 4 years
which time value of money case is this ?

Answer 16

future value of an ordinary annuity case

Question 17

the payment in the future value of an ordinary annuity equation represents the amount of ?

Answer 17

each individual, equal payment

Question 18

are the lump sums reciprocal to each other ?

Answer 18

yes

Question 19

are the future and present value of annuities reciprocal to each other ?

Answer 19

no

Question 20

how much is a dollar received at the beginning of every year for 4 years worth at the end of the 4 years
which time value of money case is this ?

Answer 20

future value of an annuity due case

Question 21

how much is a series of future payments occurring at the end of each period worth today
which time value of money case is this ?

Answer 21

present value of an ordinary annuity case

Question 22

how much is a series of future payments occurring at the beginning of each period worth today
which time value of money case is this ?

Answer 22

present value of an annuity due case

Question 23

is it always easier or harder to compare the different alternatives using present values rather than future values ?

Answer 23

easier

Question 24

When compounding anything but annually must do what with i and N ?

Answer 24

i / # of compounds per year
n * # of compounds per year

Question 25

for present value of an ordinary annuity do you add the payments together ?

Answer 25

no, each payment represented the amount of each individual, equal payment

Question 26

for the present value of an ordinary annuity are the future and present value of annuities reciprocal ?

Answer 26

no