Free Practice Quiz Question List

3 Time Value of Money Online Quiz Questions

Use this free practice quiz with 20 questions to review 3 Time Value of Money, test your knowledge, and prepare for your next test or exam.

20 questions

True or false

1 point

The time value of money means that the same amount of money can have different values depending on when it is received.

A
True
B
False

Choose one

1 point

If the future cash flow and its timing stay the same, what generally happens to its present value when the discount rate increases?

A
It generally increases present value.
B
It generally lowers present value.
C
It leaves present value unchanged.
D
It changes only future value, not present value.

Fill in the blank

1 point

An ordinary annuity makes each payment at the of each period.

Written response

1 point

What type of annuity pays at the beginning of each period?

True or false

1 point

A project has a positive net present value at the chosen discount rate. This guarantees that the project will succeed.

A
True
B
False

Choose one

1 point

An investment of $\$1{,}000$ earns $5\%$ per year, compounded annually, for two years. What is its future value?

A
$\$1{,}050.00$
B
$\$1{,}102.50$
C
$\$1{,}100.00$
D
$\$1{,}125.00$

Fill in the blank

1 point

To convert the value of an ordinary annuity to the value of an annuity due, multiply by .

Written response

1 point

A payment of $\$1{,}210$ will be received in two years. At an annual discount rate of $10\%$ , what is its present value in dollars?

Choose one

1 point

An annual nominal rate of $12\%$ is compounded monthly. Which rate and number of periods should be paired for one year of calculations?

A
A monthly rate of $12\%$ and $1$ period per year
B
A monthly rate of $1\%$ and $12$ periods per year
C
A monthly rate of $1\%$ and $1$ period per year
D
A monthly rate of $12\%$ and $12$ periods per year

Choose all

1 point

Which are appropriate uses of the time value of money? Select all that apply.

A
Estimating how an investment balance may grow
B
Comparing a lump sum today with installments by valuing both at the same date
C
Discounting expected project cash flows to evaluate an investment
D
Guaranteeing the exact amount and timing of future project cash flows

Choose all

1 point

You need to find the present value of several uneven future cash flows. Which steps are appropriate? Select all that apply.

A
Discount each cash flow using its own timing.
B
Add the discounted values.
C
Use a monthly rate with a number of years as the period count.
D
Treat every cash flow as if it occurred on the same date, regardless of its actual timing.

Choose one

1 point

A deposit of $\$2{,}000$ earns a $12\%$ annual nominal rate compounded monthly for one year. What is its approximate future value?

A
$\$2{,}240.00$
B
$\$2{,}253.65$
C
$\$2{,}400.00$
D
$\$2{,}520.00$

Open ended

1 point

A business must choose between a lump sum today and several future payments. Explain a time-value-of-money process for comparing the alternatives and give one limitation of the resulting comparison.

True or false

1 point

Holding a future cash flow and the time until it is received constant, increasing the discount rate lowers its present value.

A
True
B
False

Written response

1 point

A savings plan requires equal payments at regular intervals. What is the general financial term for this series of payments?

Choose one

1 point

An investment has nominal annual rate $r$ , is compounded monthly, and remains invested for $t$ years. Which rate and period count should be paired in the future-value calculation?

A
Use the annual rate for each period and use $t$ periods.
B
Use a periodic rate of $\frac{r}{12}$ and $12t$ periods.
C
Use a periodic rate of $12r$ and $t$ periods.
D
Use a periodic rate of $\frac{r}{t}$ and 12 periods.

Choose one

1 point

A company chooses a discount rate to value a future project cash flow. Which interpretation best fits the role of that rate?

A
It is the guaranteed return that the future cash flow will earn.
B
It is the number of periods until the cash flow is received.
C
It represents the return required for waiting and may reflect opportunity cost and risk.
D
It is the amount of the future cash flow expressed in today's dollars.

Choose one

1 point

A project has a positive net present value (NPV) at the company's chosen discount rate. Which statement correctly describes what this establishes and what it does not establish?

A
The project is certain to earn a profit and its projected cash flows will occur as estimated.
B
At the chosen discount rate, projected inflows exceed relevant outflows in present-value terms, but this does not guarantee project success or that cash flows will occur as estimated.
C
The project has no costs beyond its initial investment, although its future cash flows are uncertain.
D
The project will earn more than the chosen discount rate regardless of its actual cash flows.

Written response

1 point

You invest $\$1{,}000$ at $10\%$ per year, compounded annually, for 2 years. What is the future value?

Choose one

1 point

A saver deposits $\$1{,}000$ at the end of each year for 3 years and earns $5\%$ annually. Approximately how much will the account contain immediately after the third deposit?

A
About $\$3{,}152.50$
B
About $\$3{,}000.00$
C
About $\$3{,}307.63$
D
About $\$3{,}150.00$