Knowledge is Power

A pound today is worth more than a pound tomorrow

• True

• False

What impact does a higher interest rate have on the present value of future cash flows?

• It increases the discount factor, reducing the PV

• It decreases the FV, making PV irrelevant

• It has no impact on PV

• It increases both PV and FV

What is the present value of £1,000 to be received in 3 years at an interest rate of 5%

• £950

• £863.84

• £1,000

• £1,050

If you invest £500 at 6% annual interest for 5 years, how much will it grow to

• £600

• £750

• £669.11

• £820

What happens to the present value if the interest rate increases

• It increases

• It decreases

• It stays the same

• It depends on the future value

Sort these investments by their future value, assuming an interest rate of 6%, from lowest to highest.

• £500 for 2 years

• £300 for 4 years

• £700 for 3 years

• £1,000 for 1 year

Match the following

• Value today of a future cash flow

• Net Present Value (NPV)

• The sum of PVs of all cash flows

• Present Value (PV)

• Amount to which an investment will grow

• Discount Rate

• The interest rate used to calculate PVs

• Future Value (FV)