Corporate Finance Chapter 2 Study Guide |Question and Answer|

Corporate Finance Chapter 2 Study Guide |Question and Answer| One of the most basic principles of finance is that rational individuals prefer to receive a dollar ____ than a dollar ______. *Ans* today, tomorrow True or false: Receiving $10 today has the same value as receiving $1 today and $9 one year from now. *Ans* false If you invest $100 at 10 percent per year for 3 years, your future value with annual compounding will be ___. *Ans* $133.10 What is the future value of $10 compounded for 50 years at 10 percent annual interest? (Use the formula $10 x (1+r)t where r is the annual interest and t is the number of years). *Ans* $1,173.91 The idea behind ______ is that interest is earned on interest. *Ans* compounding A dollar tomorrow is worth ______ a dollar today. *Ans* more than Which of the following will result in a lower present value for a given future cash flow? (select all that apply) a.) Less risk b.) A lower interest rate c.) More time d.) Less time e.) A higher interest rate f.) More risk *Ans* c, e, f What are some of the implications of the time value of money concept? a.) A dollar today is worth less than a dollar tomorrow. b.) A dollar today is worth more than a dollar tomorrow. c.) A dollar tomorrow is worth less than a dollar today. d.) A dollar has the same value no matter which day it is. *Ans* b, c If you invest $100 at 10 percent per year for 2 years, your future value with annual compounding will be ______. *Ans* $121 You receive $100 today. With positive interest rates, the concept of future value implies that the future value of your $100 will be ____ $100. *Ans*