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FIN 300 Study Guide - Scotiabank

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School
Ryerson University
Department
Finance
Course
FIN 300
Professor
Scott Anderson

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Document Summary

Answers to concepts review and critical thinking questions. The four parts are the present value (pv), the future value (fv), the discount rate (r), and the life of the investment (t). Compounding refers to the growth of a dollar amount through time via reinvestment of interest earned. It is also the process of determining the future value of an investment. Discounting is the process of determining the value today of an amount to be received in the future. Future values grow (assuming a positive rate of return); present values shrink. The future value rises (assuming it"s positive); the present value falls. It"s a reflection of the time value of money. Scotia uses it wisely, it will be worth more than in twenty years. Thus, our answer does depend on who is making the promise to repay. The government of canada security would have a somewhat higher price because the government of.

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Related Questions

Time Value of Money Problems

Calculate the present value of the following investment: (a) Future Value: $123,000, (b) Number of Periods: 10, and (c) Interest Rate: 6%.

Calculate the future value of the following investment: (a) Present Value: $12,000, (b) Number of Periods: 13, and (c) Interest Rate: 4%.

Calculate the number of periods for the following investment: (a) Present Value: $30,000, (b) Future Value: $98,328, and (c) Interest Rate: 6%.

Calculate the Interest Rate for the following investment: (a) Present Value: $12,000, (b) Future Value: $25,000, and (c) Number of Periods: 14.

QUESTION 1 The time value of money refers to the issue of: A. what the value of the stream of future cash flows is today. B. why a dollar received tomorrow is worth more than a dollar received today. C. what the time required to double an amount of money. D. why people prefer to consume things at some time in the future rather than today.

QUESTION 2 The process of converting an amount given at the present time into a future value is called: A. annualizing. B. discounting. C. compounding. D. capital budgeting. 2 points

QUESTION 3 Juan Vinson is planning to buy a house in five years. He is looking to invest $25,000 today in an index mutual fund that will provide him a return of 12 percent annually. How much will he have at the end of five years? (Round to the nearest dollar.) A. $45,000 B. $28,000 C. $44,059 D. $28,530 2 points

QUESTION 4 Which of the following statements is true with respect to the present value of a future amount? A. The higher the discount rate, the higher the present value of a single sum for a given time period. B. The relation between present value and time is exponential. C. The greater the time period, the higher the present value of a single sum for a given interest rate. D. The lower the discount rate, the lower the present value of a single sum for a given time period. 2 points

QUESTION 5 Which of the following statements is true of the rule of 72? A. It can be used to determine the amount of time it takes to double an investment. B. It is fairly accurate for interest rates between 25 and 50 percent. C. It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. D. It can be used to estimate approximate compound interest earned for a period of 72 days. 2 points

QUESTION 6 The present value of future cash flows are computed by multiplying future value with the: A. discounting factor. B. compound factor. C. interest rate. D. number of periods. 2 points

QUESTION 7 The present value of multiple cash flows is: A. greater than the sum of the cash flows. B. equal to the sum of all the cash flows. C. less than the sum of the cash flows. D. higher or lower than the cash flows depending on the interest rate. 2 points

QUESTION 8 Cash flows associated with annuities are considered to be: A. an uneven cash flow stream. B. a constant cash flow stream. C. a mix of constant and uneven cash flow streams. D. a cash flow stream with decreasing trend. 2 points

QUESTION 9 The annuity transformation method is used to transform: A. a present value annuity to a future value annuity. B. a present value annuity to an annuity due. C. an ordinary annuity to an annuity due. D. a perpetuity to an annuity. 2 points

QUESTION 10 The true cost of borrowing is the: A. annual percentage rate. B. effective annual rate. C. quoted interest rate. D. periodic rate.

Relationship between future value and present value: Mix stream.Using the information in the accompanying table, answer thequestions that follow. Year Cash flow 0 $0 1 800 2 900 3 1000 41500 5 2000 a. Determine the present value of the mixed stream ofcash flows, using a 5% discount rate. b. Suppose you had a lump sumequal to your answer in part (a) on hand today. If you investedthis sum for 5 years and earned a 5% return each year, how muchwould you have after 5 years? c. Determine the future value 5 yearsfrom now of the mixed stream, using a 5% interest rate. Compareyour answer here to your answer in part b. d. How much would you bewilling to pay for this stream, assuming that you can at best earn5% on your investments?