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1. The preference for consuming goods today instead of waiting to consume those goods in the future is the basis for the
time-value-of-money.
A. True
B. False

2. The time-value-of-money concept assumes that

A. People accept less money only if they have no other choice.

B. People accept less money to reduce the time they must wait.

C. People accept less money to increase the time they must wait.

D. People accept less money if the time they must wait is unaffected.

3. The future value of money in a savings account for one year with annual compounding will be the same whether the value is
calculated using simple interest or compound interest.
A. True
B. False

4. Continuous compounding captures the effect that increasing the number of periods has on a future value.
A. True
B. False

5. Which of the following is true?

A. The future value of an investment will be larger if the investment earns 5% instead of 10%.

B. The future value of an investment will be larger if the investment is for 12 years instead of 6 years.
C. The future value of an investment does not depend on the rate of return that the investment earns.
D. The future value of a cash-flow does not depend on the length of time that the funds are invested.

6. Generally, the future value of an investment will be greater if

A. The investment is compounded at a lower rate of return

B. The investment is compounded at a higher rate of return

C. The investment is discounted at a lower rate of return

D. The investment is discounted at a higher rate of return

7. Principal may be described as the

A. Average balance in a savings account

B. Beginning balance in a savings account

C. Daily balance in a savings account

D. Ending balance in a savings account

8. Dr. Kilic has $300,000 in a stock fund. The fund pays a 10% return, compounded annually. If he does not make another deposit
into the account, how long will it take for the account to increase to $1 million?
A. 23 .33 years
B. 12.63 years

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C. 33.33 years
D. 16.66 years

9. As the discount rate increases, the present value of a future cash-flow increases.
A. True
B. False

10. The present value of a future cash-flow:

A. Increases as the discount rate decreases

B. Decreases as the discount rate decreases

C. Increases as the number of discounting periods increases

D. Decreases as the number of discounting periods decreases

11. Assume that potential projects X, Y and Z will each pay a total of $100,000 over 20 years. X pays $8000 per year for 10 years
and $2000 per year for 10 years. Y pays $2000 per year for 10 years and $8000 per year for 10 years. Z pays $5000 per year
for 20 years. Which project is likely to be most attractive to an investor?
A. The project with large cash flows early is likely to be most attractive.
B. The project with large cash flows later is likely to be most attractive.

C. The project with equal cash flows each year is likely to be most attractive.

D. The projects have equal total cash flows and are likely to be equally attractive.

12. Kathleen just received a bonus from EG. She is excited because her dad started his career with EG. If her bonus of $30,000 is
equivalent to the bonus paid to her dad 25 years ago, how much was her dad's bonus? Assume that the average annual
inflation rate was 3.8%.
A. $11,808
B. $15,385

C. $28,902
D. $76,217

13. The Rule of 72 always yields a precise estimate of the length of time it takes for a sum of money to double.
A. True
B. False

14. At what rate must $400 be compounded annually for it to increase to $1432.80 in 10 years?
A. 11.98%
B. 13.61%

C. 25.82%
D. 35.82%

15. Craig is a weightlifter whose maximum lift is 200 pounds. He believes he can increase his maximum by 4% per month for the
next four months. If Craig achieves his goal, his maximum lift will increase to approximately
A. 230 pounds.
B. 232pounds.

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C. 234 pounds.
D. 236 pounds.

16. Money has time value because:

A. People prefer to consume things today rather than at some time in the future.
B. People can earn interest on money that is invested.

C. People require compensation for deferring consumption.

D. All of these.

17. Which of the following statements is true?

A. Timelines help us to correctly identify the size and timing of cash flows.

B. A timeline is a horizontal line that starts out at time 0 and shows cash flows as they occur.
C. Timelines can help us solve problems involving multiple cash flows.
D. All of these.

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to
grade the test.

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100% (17 out of 17 correct)

1. The preference for consuming goods today instead of waiting to consume those goods in the future is the basis for the
time-value-of-money.
A. True

B. False

2. The time-value-of-money concept assumes that

A. People accept less money only if they have no other choice.

B. People accept less money to reduce the time they must wait.

C. People accept less money to increase the time they must wait.

D. People accept less money if the time they must wait is unaffected.

3. The future value of money in a savings account for one year with annual compounding will be the same whether the
value is calculated using simple interest or compound interest.
A. True

B. False

4. Continuous compounding captures the effect that increasing the number of periods has on a future value.
A. True

B. False

5. Which of the following is true?

A. The future value of an investment will be larger if the investment earns 5% instead of 10%.

B. The future value of an investment will be larger if the investment is for 12 years instead of 6 years.
C. The future value of an investment does not depend on the rate of return that the investment earns.
D. The future value of a cash-flow does not depend on the length of time that the funds are invested.

6. Generally, the future value of an investment will be greater if

A. The investment is compounded at a lower rate of return

B. The investment is compounded at a higher rate of return

C. The investment is discounted at a lower rate of return

D. The investment is discounted at a higher rate of return

7. Principal may be described as the

A. Average balance in a savings account

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B. Beginning balance in a savings account

C. Daily balance in a savings account

D. Ending balance in a savings account

8. Dr. Kilic has $300,000 in a stock fund. The fund pays a 10% return, compounded annually. If he does not make another
deposit into the account, how long will it take for the account to increase to $1 million?
A. 23 .33 years
B. 12.63 years

C. 33.33 years
D. 16.66 years

9. As the discount rate increases, the present value of a future cash-flow increases.
A. True

B. False

10. The present value of a future cash-flow:

A. Increases as the discount rate decreases

B. Decreases as the discount rate decreases

C. Increases as the number of discounting periods increases

D. Decreases as the number of discounting periods decreases

11. Assume that potential projects X, Y and Z will each pay a total of $100,000 over 20 years. X pays $8000 per year for
10 years and $2000 per year for 10 years. Y pays $2000 per year for 10 years and $8000 per year for 10 years. Z pays
$5000 per year for 20 years. Which project is likely to be most attractive to an investor?
A. The project with large cash flows early is likely to be most attractive.
B. The project with large cash flows later is likely to be most attractive.

C. The project with equal cash flows each year is likely to be most attractive.

D. The projects have equal total cash flows and are likely to be equally attractive.

12. Kathleen just received a bonus from EG. She is excited because her dad started his career with EG. If her bonus of
$30,000 is equivalent to the bonus paid to her dad 25 years ago, how much was her dad's bonus? Assume that the
average annual inflation rate was 3.8%.
A. $11,808
B. $15,385

C. $28,902
D. $76,217

13. The Rule of 72 always yields a precise estimate of the length of time it takes for a sum of money to double.

3 of 3

A. True

B. False

14. At what rate must $400 be compounded annually for it to increase to $1432.80 in 10 years?
A. 11.98%
B. 13.61%

C. 25.82%
D. 35.82%

15. Craig is a weightlifter whose maximum lift is 200 pounds. He believes he can increase his maximum by 4% per month
for the next four months. If Craig achieves his goal, his maximum lift will increase to approximately
A. 230 pounds.
B. 232pounds.

C. 234 pounds.
D. 236 pounds.

16. Money has time value because:

A. People prefer to consume things today rather than at some time in the future.
B. People can earn interest on money that is invested.

C. People require compensation for deferring consumption.

D. All of these.

17. Which of the following statements is true?

A. Timelines help us to correctly identify the size and timing of cash flows.

B. A timeline is a horizontal line that starts out at time 0 and shows cash flows as they occur.
C. Timelines can help us solve problems involving multiple cash flows.
D. All of these.

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