CHAPTER 3: TIME VALUE OF MONEY

The "time value of money" means that

• money paid out today less value than if the money is paid out in the future

• money received today is worth more than the same amount of money received in the future

• the more time a person has to save, the lower the return on the money

• the longer money is held, the less likely it will be spent

The amount of money a person expects to have in the future is called

• Principal

• Interest

• Present value

• Future value

Process of changing future value to the present value known as

• Compound

• Discount

• Simple interest

• Principal

Process of changing present value to the future value known as

• Principal

• Discount

• Simple interest

• Compound

Earning interest on interest is called

• Extra interest

• Inflation interest

• Simple interest

• Compound interest

Lisa wants to know what the value of her RM1,000 will be if she invests it for 3 years at a given rate. What is Lisa trying to find?

• Present value

• Future value

• Effective annual rate (EAR)

• Discount rate

Cash received today is preferred to cash received in the future

• True

• False

Today, you deposit RM500 into Bank A saving account that pays 8% interest per year. How much will you have in five years?

• RM738.73

• RM734.66

• RM834.66

• RM850.66

What is the present value of RM10,000 to be received in year 10 at an interest rate of 10%?

• RM4,855.43

• RM5, 855.43

• RM3,855.43

• RM6, 855.43

You invest RM700 in an acoount that pays 8% interest, compounded annually. How much money do you have after six years? Round your answer to the nearest cent.

• RM1,110.81

• RM1, 111.81

• RM1, 112.81

• RM1,101.81