Chapter 09 - The Time Value of Money
Chapter 09
The Time Value of Money
True / False Questions
1. An amount of money to be received in the future is worth less today than the stated
amount.
True False
2. Discounting refers to the growth process that turns $1 today into a greater value several
periods in the future.
True False
3. Compounding refers to the growth process that turns $1 today into a greater value several
periods in the future.
True False
4. The interest factor for the future value of a single sum is equal to (1 + n)i.
True False
5. The time value of money is not a useful concept in determining the value of a bond or in
capital investment decisions.
True False
6. If a single amount were put on deposit at a given interest rate and allowed to grow, its
future value could be determined by reference to the future value of $1 table.
True False
9-1
,Chapter 09 - The Time Value of Money
7. The time value of money concept is fundamental to the analysis of cash inflow and outflow
decisions covering periods of over one year.
True False
8. The future value is the same concept as the way money grows in a bank account.
True False
9. Cash flow decisions that ignore the time value of money will probably not be as accurate as
those decisions that do rely on the time value of money.
True False
10. The present value of a positive future inflow can become negative as discount rates
become higher and higher.
True False
11. The interest factor for a future value (FVIF) is equal to (1 + i)n.
True False
12. The formula PV = FV(1 + n)i will determine the present value of $1.
True False
13. In determining the interest factor (IF) for the present value of $1, one could use the
reciprocal of the IF for the future value of $1 at the same rate and time period.
True False
14. To determine the current worth of 4 annual payments of $1,000 at 4%, one would refer to
a table for the present value of $1.
True False
9-2
,Chapter 09 - The Time Value of Money
15. As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
True False
16. The interest factor for the present value of a single amount is the inverse of the future
value interest factor.
True False
17. The interest factor for the present value of a single sum is equal to (1 + i)/i.
True False
18. Higher interest rates (discount rates) reduce the present value of amounts to be received in
the future.
True False
19. In determining the future value of an annuity, the final payment is not compounded at all.
True False
20. The future value of an annuity assumes that the payments are received at the end of the
year and that the last payment does not compound.
True False
21. The future value of an annuity table provides a short-cut for calculating the future value of
a steady stream of payments, denoted as A. The same value can be calculated directly from
the following equation:
True False
9-3
, Chapter 09 - The Time Value of Money
22. The present value of an annuity table provides a short-cut for calculating the future value
of a steady stream of payments, denoted as A. The same value can be calculated directly from
the following equation:
True False
23. The amount of annual payments necessary to accumulate a desired total can be found by
reference to the present value of an annuity table.
True False
24. If an individual's cost of capital were 6%, he/she would prefer to receive $110 at the end
of one year rather than $100 right now.
True False
25. In evaluating capital investment projects, current outlays must be judged against the
current value of future benefits.
True False
26. The farther into the future any given amount is received, the larger its present value.
True False
27. The interest factor for the future value of an annuity is simply the sum of the interest
factors for the future value using the same number of periods.
True False
9-4
Chapter 09
The Time Value of Money
True / False Questions
1. An amount of money to be received in the future is worth less today than the stated
amount.
True False
2. Discounting refers to the growth process that turns $1 today into a greater value several
periods in the future.
True False
3. Compounding refers to the growth process that turns $1 today into a greater value several
periods in the future.
True False
4. The interest factor for the future value of a single sum is equal to (1 + n)i.
True False
5. The time value of money is not a useful concept in determining the value of a bond or in
capital investment decisions.
True False
6. If a single amount were put on deposit at a given interest rate and allowed to grow, its
future value could be determined by reference to the future value of $1 table.
True False
9-1
,Chapter 09 - The Time Value of Money
7. The time value of money concept is fundamental to the analysis of cash inflow and outflow
decisions covering periods of over one year.
True False
8. The future value is the same concept as the way money grows in a bank account.
True False
9. Cash flow decisions that ignore the time value of money will probably not be as accurate as
those decisions that do rely on the time value of money.
True False
10. The present value of a positive future inflow can become negative as discount rates
become higher and higher.
True False
11. The interest factor for a future value (FVIF) is equal to (1 + i)n.
True False
12. The formula PV = FV(1 + n)i will determine the present value of $1.
True False
13. In determining the interest factor (IF) for the present value of $1, one could use the
reciprocal of the IF for the future value of $1 at the same rate and time period.
True False
14. To determine the current worth of 4 annual payments of $1,000 at 4%, one would refer to
a table for the present value of $1.
True False
9-2
,Chapter 09 - The Time Value of Money
15. As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
True False
16. The interest factor for the present value of a single amount is the inverse of the future
value interest factor.
True False
17. The interest factor for the present value of a single sum is equal to (1 + i)/i.
True False
18. Higher interest rates (discount rates) reduce the present value of amounts to be received in
the future.
True False
19. In determining the future value of an annuity, the final payment is not compounded at all.
True False
20. The future value of an annuity assumes that the payments are received at the end of the
year and that the last payment does not compound.
True False
21. The future value of an annuity table provides a short-cut for calculating the future value of
a steady stream of payments, denoted as A. The same value can be calculated directly from
the following equation:
True False
9-3
, Chapter 09 - The Time Value of Money
22. The present value of an annuity table provides a short-cut for calculating the future value
of a steady stream of payments, denoted as A. The same value can be calculated directly from
the following equation:
True False
23. The amount of annual payments necessary to accumulate a desired total can be found by
reference to the present value of an annuity table.
True False
24. If an individual's cost of capital were 6%, he/she would prefer to receive $110 at the end
of one year rather than $100 right now.
True False
25. In evaluating capital investment projects, current outlays must be judged against the
current value of future benefits.
True False
26. The farther into the future any given amount is received, the larger its present value.
True False
27. The interest factor for the future value of an annuity is simply the sum of the interest
factors for the future value using the same number of periods.
True False
9-4
