Bài test tiếng Anh ngành ngân hàng và đáp án phần 5

Future value focuses on the valuation of cash flows received over time, while present value focuses on the valuation of cash flows received at a point in time.. The present value is simp

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Format: True/False

Learning Objective: LO 1

Level of Difficulty: Easy

1 Time value of money is based on the belief that people have a positive time preference for consumption

2 Individuals prefer to consume goods in the future rather than right away

3 The value of a dollar invested at positive interest rate grows over time

Level of Difficulty: Medium

4 The value of a dollar invested at positive interest rate grows over time but at an

increasingly slower rate further into the future

B) False

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Format: True/False

5 The further in the future you receive a dollar, the more it is worth today

6 The higher the rate of interest, the more likely you will elect to invest your funds and forego current consumption

7 Future value focuses on the valuation of cash flows received over time, while present value focuses on the valuation of cash flows received at a point in time

8 The present value technique uses discounting to find the present value of each cash

flow at the beginning of the project

A) True

B) False

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Format: True/False

9 The present value technique uses compounding to find the present value of each cash

flow at the beginning of the project

10 The future value technique uses discounting to find the future value of each cash flow

at the end of the project's life

11 The future value technique uses compounding to find the future value of each cash flow

at the end of the project's life

12 Compounding is the process by which interest earned on an investment is reinvested so

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Ans: A

Format: True/False

13 Compound interest consists of both simple interest and interest-on-interest

14 Compound interest consists only of interest-on-interest

15 Compounding accelerates the growth of the total interest earned

16 The growth rate over time is linear

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Ans: B

Format: True/False

17 The growth rate over time is exponential

18 Berrian invested $5,000 in an account earning 10 percent for one year If he had left his investment in that account for another two years, he would expect the total interest earned over the three years to be higher by exactly $1,000

19 The higher the interest rate on an investment, the more money that is accumulated for any time period

A) True

B) False

Ans: A

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20 The more frequently the interest payments are compounded, the larger the future value

of $1 for a given time period

21 If Bank A pays interest on a monthly basis and Bank B pays the same interest on a quarterly basis, then investing $1,000 in Bank B will lead to a higher future value than investing the same amount in Bank A

22 The present value can be thought of as the discounted value of a future amount.

23 The present value is simply the current value of a future cash flow that has been discounted at the appropriate discount rate

A) True

B) False

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Format: True/False

24 The Rule of 72 allows one to calculate the return earned on an investment over six years.

25 The Rule of 72 allows one to calculate the approximate time needed to double an investment.

26 Compound growth occurs when the initial value of a number increases or decreases each period by the factor (1 + growth rate)

27 The future value of an investment of $5,000 earning an annual interest of 10 percent

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Ans: B

Format: True/False

28 The present value of an investment of $1,000 to be received in three years at a discount rate of 10 percent is $751.31

29 The present value of an investment of $1,000 to be received in three years at a discount rate of 10 percent is $1,331

30 The future value of an investment of $1,000 to be received in three years at a discount rate of 10 percent is $1,331

A) True

B) False

Ans: A

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Format: True/False

31 The higher the discount rate, the lower the present value of a future cash flow

32 The lower the discount rate, the lower the present value of a future cash flow

33 If you had a choice of choosing a payment of $5,000 to be received in five years being discounted at 8 percent or at 10 percent, you should always choose the higher rate because it gives you the higher present value

34 Randy has to choose between two cash flows He could either receive the future value

of an investment of $1,000 at 8 percent annually in three years or in five years Randy should always choose the shorter investment term because it is worth more today

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Format: True/False

35 If Laura has to choose between a loan that charges quarterly interest and a loan that charges monthly interest, she should always choose the one charging quarterly interest

36 The time value of money refers to the issue of

A) what the value of the stream of future cash flows is today.

B) why a dollar received tomorrow is worth more than a dollar received today.C) why a dollar received tomorrow is worth the same as a dollar received today.D) None of the above

Ans: A

Format: Multiple Choice

37 Which one of the following statements is NOT true?

A) The time value money refers to what the value of the stream of future cash flows today is

B) A dollar received today is worth more than a dollar received tomorrow

C) A dollar received tomorrow is worth less than a dollar received today

D) A dollar received today is worth less than a dollar received tomorrow.

Ans: D

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A) The value of a dollar invested at a positive interest rate grows over time.B) The further in the future you receive a dollar, the less it is worth today

C) A dollar in hand today is worth more than a dollar to be received in the future

D) The further in the future you receive a dollar, the more it is worth today.

Ans: D

39 Future value measures

A) what one or more cash flows are worth at the end of a specified period.

B) what one or more cash flows that is to be received in the future will be worth today

40 Which one of the following statements is true?

A) Individuals prefer to consume goods right away rather than in the future.

B) Individuals prefer to consume goods in the future rather than right away.C) The time of consumption is irrelevant to individuals

D) None of the above

Ans: A

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Level of Difficulty: easy

41 The process of converting an amount given at the present time into a future value

42 The process of converting future cash flows to what its present value is

A) time value of money

A) Present value calculations involve bringing a future amount back to the present.B) The present value (PV) is often called the discounted value of future cash payments

C) The present value factor is more commonly called the discount factor.

D) All of the above are true statements.

Ans: D

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A) Present value calculations involve bringing a future amount back to the present

B) The future value is often called the discounted value of future cash

payments.

C) The present value factor is more commonly called the discount factor.

D) The higher the discount rate, the lower the present value of a dollar

A) can be used to determine the amount of time it takes to double an investment.

B) is fairly accurate for interest rates between 25 and 50 percent

C) states that the time to double your money (TDM) approximately equals 72/i,

where 72 represents the years it takes to double your investment

D) None of the above describe the Rule of 72

Ans: A

46 Using higher discount rates will

A) not affect the present value of the future cash flow

B) increase the present value of any future cash flow

C) decrease the present value of any future cash flow.

Ans: C

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47 Using higher interest rates will

A) not affect the future value of the investment

B) increase the future value of any investment.

C) decrease the future value of any investment

Ans: B

48 Using lower discount rates will

A) not affect the present value of the future cash flow

B) increase the present value of any future cash flow.

C) decrease the present value of any future cash flow.D) None of the above

Ans: B

49 Using lower interest rates will

A) decrease the future value of any investment.

B) increase the future value of any investment

C) not affect the future value of the investment

Ans: A

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50 Your aunt is looking to invest a certain amount today Which of the following choices should she opt for?

A) three-year CD at 6.5% annual rate

B) three-year CD at 6.75% annual rate

C) three-year CD at 6.25% annual rate

D) three-year CD at 7% annual rate

Ans: D

51 Future value: You are interested in investing $10,000, a gift from your grandparents,

for the next four years in a mutual fund that will earn an annual return of 8 percent What will your investment be worth at the end of four years? (Round to the nearest dollar.)

Present value of the investment = PV = $10,000

Return on mutual fund = i = 8%

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52 Future value: Ning Gao is planning to buy a house in five years She is looking to

invest $25,000 today in an index mutual fund that will provide her a return of 12 percent annually How much will she have at the end of five years? (Round to the nearest dollar.)

Return on mutual fund = i = 12%

53 Future value: Carlos Lopes is looking to invest for the next three years He is looking

to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually How much will he have at the end of three years? (Round to the nearest dollar.)

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54 Future value: Wes Ottey would like to buy a condo in Florida in six years He is

looking to invest $75,000 today in a stock that is expected to earn a return of 18.3 percent annually How much will he have at the end of six years? (Round to the nearest dollar.)

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55 Future value: Brittany Willis is looking to invest for retirement, which she hopes will

be in 20 years She is looking to invest $22,500 today in U.S Treasury bonds that will earn interest at 6.25 percent annually How much will she have at the end of 20 years? (Round to the nearest dollar.)

Return on Treasury bonds = i = 6.25%

56 Multiple compounding periods (FV): Your brother has asked you to help him with

choosing an investment He has $5,000 to invest today for a period of two years You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paidquarterly What will be the value of the investment in two years?

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57 Multiple compounding periods (FV): Normandy Textiles had a cash inflow of $1

million, which it needs for a long-term investment at the end of one year It plans to deposit this money in a bank CD that pays daily interest at 3.75 percent What will be the value of the investment at the end of the year? (Round to the nearest dollar.)A) $1,211,375

B) $1,000,103

C) $1,037,500

D) $1,038,210

Ans: D

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58 Multiple compounding periods (FV): Your mother is trying to choose one of the

following bank CDs to deposit $10,000 Which one will have the highest future value ifshe plans to invest for three years?

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= $10,000 x (1.0375)3

= $11,167.71

59 Multiple compounding periods (FV): Carlyn Botti wants to invest $3,500 today in a

money market fund that pays quarterly interest at 5.5 percent She plans to fund a scholarship with the proceeds at her alma mater, Towson University How much will Carlyn have at the end of seven years? (Round to the nearest dollar.)

Amount invested today = PV = $3,500

Interest rate on money market account = i = 5.5%

Duration of investment = n = 7 years

Frequency of compounding = m = 4

Value of investment after 7 years = FV7

4 7 7

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60 Multiple compounding periods (FV): Hector Cervantes started on his first job last

year and plans to save for a down payment on a house in 10 years He will be able to invest $12,000 today in a money market account that will pay him an interest of 6.25 percent on a monthly basis How much will he have at the end of 10 years?

Amount invested today = PV = $12,000

Interest rate on money market account = i = 6.25%

Duration of investment = n = 10 years

Frequency of compounding = m = 12

Value of investment after 10 years = FV10

12 10 10

61 Compounding: Trish Harris has deposited $2,500 today in an account paying 6 percent

interest annually What would be the simple interest earned on this investment in five years? If the account paid compound interest, what would be the interest-on-interest in

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Simple interest per year = $2,500 (0.06) = $150.00

Simple interest for 5 years = $150 x 5 = $750.00

Future value with compound interest:

62 Compounding: Joachim Noah is investing $5,000 in an account paying 6.75 percent

annually for three years What is the interest-on-interest if interest is compounded?A) $1,012.50

B) $1,082.38

C) $82.38

D) $69.88

Ans: D

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Simple interest for 3 years = $337.50 x 3 = $1,012.50

63 Compounding: Chung Lee wants to invest $3,000 in an account paying 5.25 percent

compounded quarterly What is the interest on interest after four years?

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Simple interest for 4 years = $157.50 x 4 = $630

4 4 4

64 Compounding: Dat Nguyen is depositing $17,500 in an account paying an annual

interest rate of 8.25 percent compounded monthly What is the interest-on-interest after six years?

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