Time Value of Money Concept Review

Which of the following is the best description of the relationship between present and future value?

Future Value - Present Value = Interest Earned

The future value of a single sum will:

Increase over time due to interest accumulation.

The present value of a sum due in the future:

Decreases as the years to receipt increases

The _______ is the true interest rate earned over a one year-period. It is the actual change expected over the one year period

Effective annual rate

The effective annual rate of interest is:

Greater than or equal to the nominal interest rate

Which of the following investrnent opportunities would yield the highest return

Quoted annual rate of 6% with monthly compounding.

Which of the following statements most accurately defines an ordinary(simple) annuity?

It is a series of equal payments (or receipts) at the end of equal time intervals

An annuity whose payments occur at the beginning of each period is called:

An annuity due

The present value of annuity due will:

Exceed the present value of an ordinary annuity (assuming all else equal)

The present value of a perpetuity cannot be found since it is an annuity that goes on forever

False