Time Value of Money

There are three ways to transfer capital in the economy. They include the following except

• Indirect Transfer (using financial intermediary)

• Direct Transfer (using investment banks)

• Direct Transfer

• Indirect Transfer (using investment banks)

Answer explanation

Kenshiro will have $119.10 in his account after 2 years with a 6% interest rate per annum.

Jose has $1000 that he wants to invest. How can he increase the future value of his investment?

• By decreasing the number of years he leaves his money invested

• By decreasing the interest rate of his investment

• By decreasing the amount of his original investment

• By increasing the amount of his original investment

Answer explanation

To increase the future value of his investment, Jose should increase the amount of his original investment.

Lucie is planning to invest $500 in a savings account that offers a 6% discount rate. How much will her investment be worth 10 years from today?

• $2,185.69

• $335.85

• $178.00

• $2,791.19

Answer explanation

Lucie's $500 investment with a 6% discount rate will be worth $2,185.69 after 10 years.

Yuta is planning his retirement and is considering investing in an annuity. Can you help him understand what an annuity is?

• A series of unequal dollar payments that Yuta will receive for a specified number of years

• A single payment that Yuta will receive at the end of a period

• A series of equal dollar payments that Yuta will receive for a specified number of years

• A single payment that Yuta will make at the beginning of a period

Answer explanation

An annuity is a series of equal dollar payments that Yuta will receive for a specified number of years.

Ryuki has a trust fund that will pay him $2,000 every year indefinitely. If the interest rate is 10%, what is the present value of this trust fund?

• $10,000

• $200,000

• $2,000

• $20,000

Answer explanation

The present value of the trust fund is $10,000 because it represents the amount needed to generate $2,000 per year indefinitely at a 10% interest rate.

Sergio and Maria are discussing about their savings account. Sergio says that they can compare their interest rates by comparing the nominal interest rates. Maria disagrees and says that they can make their interest rates comparable by computing the annual percentage rate (APR) and the effective annual rate (EAR). Who is correct?

• Maria is correct, by computing the annual percentage rate (APR) and the effective annual rate (EAR)

• Sergio is correct, by comparing the nominal interest rates

• Both are correct, by using different compounding periods for different rates

• Both are correct, by using the same compounding periods for all rates

Answer explanation

Maria is correct. Comparing the APR and EAR allows for accurate comparison of interest rates.

Maria is planning to invest $500 every year for 5 years in a savings account that offers a 6% interest rate. What will be the future value of her investment?

• $2,032,644

• $2,185.69

• $2,791.19

• $2,439,173

Answer explanation

The future value of Maria's investment will be $2,185.69. This is calculated using the formula for compound interest: FV = P(1+r)^n, where P is the principal amount, r is the interest rate, and n is the number of years.

Jose, Victor, Akinori, Sergio, and Pedro are all part of an investment club. They are considering an investment opportunity that involves an uneven stream of returns. If they discount these returns to the present at a rate of 6 percent, what is the present value of this investment?

• $2,185.69

• $2,791.19

• $178.00

• $335.85

Answer explanation

The present value of the investment is $2,185.69. This is calculated by discounting the uneven stream of returns at a rate of 6 percent.

Maria deposited $100 in a bank. If the bank compounds interest at various intervals for 1 year at a rate of 10%, what will be the value of Maria's deposit after 1 year?

• $110.47

• $110.38

• $110.25

• $110.00

Answer explanation

Maria's deposit will grow to $110.38 after 1 year due to compounding interest at a rate of 10%.

Erick De Jesus is to receive $500 10 years from today. If the discount rate is 6%, the present value of that amount is ​ (a)  

​ ​ ​

• $279.00
• $423.00
• $237.00
• $346.00
• $512.00