Fundamentals of Corporate Finance, 12e (Ross)
Chapter 5  Introduction to Valuation: The Time Value of Money
1) Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning at 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true?
A) Barb will earn more interest in Year 1 than Andy will.
B) Andy will earn more interest in Year 3 than Barb will.
C) Barb will earn more interest in Year 2 than Andy.
D) After five years, Andy and Barb will both have earned the same amount of interest.
E) Andy will earn compound interest.
2) Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct?
A) Nan will have less money when she retires than Neal.
B) Neal will earn more interest on interest than Nan.
C) Neal will earn more compound interest than Nan.刀鱼和带鱼
D) If both Nan and Neal wait to age 70 to retire they will have equal amounts of savings.
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快速运动减肥方法E) Nan will have more money than Neal at any age.
3) You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now?
A) Future value
B) Present value
C) Principal amount
D) Discounted value
E) Invested principal
4) Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as:
A) simplifying.
time is moneyB) compounding.
C) aggregating.
D) accumulating.
E) discounting.
5) Art invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:
A) free interest.
B) bonus income.
C) simple interest.
D) interest on interest.
E) present value interest.
6) The interest earned on both the initial principal and the interest reinvested from prior periods is called:
A) free interest.
B) dual interest.
C) simple interest.
D) interest on interest.
E) compound interest.
7) Renee invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?
A) Free interest
B) Complex interest
C) Simple interest
男羊配什么属相最好D) Interest on interest
E) Compound interest
8) Kurt won a lottery and will receive $1,000 a year for the next 50 years. The current value of these winnings is called the:
A) single amount.
B) future value.
C) present value.
D) simple amount.
电视柜设计E) compounded value.
9) Terry is calculating the present value of a bonus he will receive next year. The process he is using is called:
A) growth analysis.
B) discounting.
C) accumulating.
D) compounding.
E) reducing.
10) Steve just computed the present value of a $10,000 bonus he will receive next year. The interest rate he used in his computation is referred to as the:
A) current yield.
B) effective rate.
C) compound rate.
D) simple rate.
E) discount rate.
11) The process of determining the present value of future cash flows in order to know their value today is referred to as:
A) compound interest valuation.
B) interest on interest valuation.
C) discounted cash flow valuation.
D) future value interest factoring.
E) complex factoring.
12) Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:
A) will earn the same amount of interest each year for four years.
B) will earn simple interest on his savings every year for four years.
C) could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest.
D) has an account currently valued at $5,000.
E) could earn more interest on this account if the interest earnings were withdrawn annually.
13) This afternoon, you deposited $1,000 into a retirement savings account. The account will compound interest at 6 percent annually. You will not withdraw any principal or interest until you retire in 40 years. Which one of the following statements is correct?