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Activity 2 in Financial Management

Time Value of Money

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Isay Liriko
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129 views12 pages

Activity 2 in Financial Management

Time Value of Money

Uploaded by

Isay Liriko
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
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ity 2 inandial _WANOI© Bomolt, Teng BA 9. ‘sn estate is true, Ole tore “False”, eprue” if found by applying compoung 1. TRUE OR FALSESTATEMENTS. Mrle aaa t value, |. Future value is the value of a future amount at the present val interest over aspexifed period of time. ; feud 2. Interest Setar given deposit that has become part of the Pr! period iscalled compound interest saleompoundi tye 3. The nominal and effective alent for anni atee ot exine yao + Thecetary anny jsan annuity for which the cash flow occurs Et ie hp The present value inerest fac Fr ni he interest factor fork percent and n periOds. | reer emo interest rate and ora od of time, the more frequentY unde, he Me ee jean of 7 ry pi i ay met aceite ef mains constant over the lif ofthe kan, amount. que, 7. In general with an amortized Toa, the payment amount £2 I the principal portion of each payment grows ver the life ofthe oan, and the interest portion of each payment declines over the if ofthe loan. When computing an interest oF growth rate, the rate will i holding present value ane the numberof periods constant. | jue, 9. Given a discount rate of zero percent sat periods of time, the present value intrest factor and future value interest factor are equa. yub 10. The future value ofan anity due is ordinary annuity. ; ; faye, Hl Time value of money i based cn the belief hata peso that wil be received at some future dates worth more than a peso today. yt 12 For given intrest rat, the future value of 100 increases with the passage of time. Thus, the longer the period of ime the greater the future value jy 13. Annuity dueis an amount that occurs at the beginning of each period. rut, 14. The annual percentage rate (APR) s the nominal rate of interest, found by multiplying the periodic rate by the numberof periods in one year qve- 15. The loan amortization process involves finding the future payments (over the term ofthe lat) whose present value atthe Ioan inferest rate equals the sum of the amount of initial principal borrowed and the amount of interest on the loan, ‘When computing the number of deposits needed to accumulate a future sum, it will take longer te ower the interest rate, holding the future value and deposit size constant. ‘jut, 17. The efecive rat of interest des from the nominal rate of interest in that it reflects the impact ‘compounding frequency. “tru, 18, Future value interest factor annuity is the futur is it . ormaiel ste ‘ ty is the future value of Pl ordinary annuity for n period ww 19, The future increases with i ae jaa with increases in the interest rate or the period of time funds ae let folie, 20. The fu i e future value interest factor if the future value of Pl per period compounded at I percent fon z $ cipal atthe end ofa specify toe 8 rerease the larger the future vale, ways gente than the fatore value of an otherwise iden awe 16. periods, Pea Jaue bh egrets a opportunities to warn positive rates of return 0” ot flows doesnot have any significant economi ane 2 Te anal premige yield is the effective rate of interest that rust be dscased easton) savings products as a result of “truth in savings laws”, |, _ _ __ ee | | false) 23. When computing an interest or tate, the i i growth rate, the rate wil . folding present alu and the number of peri ral rill de fe gfe fal 24, Theeffetive rate of interest and compounding frequency are inversely related. fae 25. In genera, with an amortized Joan, the payment amount remains constant over the life ofthe lar, th principal prtion of ech payment ens over the ie ofthe lan and the nest Poon declines over the life ofthe loan, 26. The greater the potential return on an investment and the longer the period of time, the higher the fae valve. twe a. eething ee xing equa the loge the perio time the wer he present alae fae 2 Pe mina (tated) annua atthe ate ofifers actly paid or ered sae 3 When computing the number of deposits needed to accumulate toa future sum. it will take longer theighe the intrest ate, holding the ture vale and deposit ie const tate re tole Bernal to net gb 3 eer Poms) 7 IL MULTIPLE CHOICE QUESTIONS Encircle the let that corresponds to the best asx. 1 Heel ona depos a one put othe pric ath end of» Fed time period the concepts called a. Discount interest 2 pst ins te increases fo any given period the ftv interest ator wl a. Decrease © Increase Remain unchanged 4. Move toward 1. 4 sheanmunt of mney ht wold ave be invested tay agen test atone 2 Ps period in order to equal a future amount i called 2. Future value © Present value Future value interest factor . Present value interest factor 4 The future value of a peso asthe interest ate increases and __ the farther in the future an initial deposit isto be received 4 Decreases; decreases b. Decreases increases © Increases: increases Increases, decreases EE e——~—————tle Steet tne Vevey ———<——~S~S ptf the funds increases the pee For a given interest rate, as the length of time until recel Interest factor a. Changes proportionally b. Increases ® Decreases Remains unchanged 6. Indicate which formula is correct to determine the future Value ofan annuity due. a. FVAs# PMT xFVIFAw ® BVAs=PMT x [FVIFAwx (1+ i] © FVAS=PMT x[FVIFAw/ (1+) d. FVAs=PMTXFVIFAw #1 fing is t ‘about annuities enact ied at the beginning of each period, 7. Indicate which of the fol ee v. Anordinary annuity san equal payment Po¥ orreceived att each per b. An annuity dues a payment paid or received atthe beginning of each period that ineases by an equal amount exch period. , ; ‘Anannuity due isan equal payment pad or received atthe beginning of each period. d. An ordinary annuity is an ‘equal payment paid or received at the end of each period that jnereases by an equal amount each period Anannuity with an infinite lifes called a(n) @ Perpetuity , Primia c, Indefinite d, Deep discount 4, isan annuity with an inf life making continual annual payments. ‘a. Anamortized Joan b, Aprincipal ® Aperpetulty d. AnAPR the following is true? 10. Incomparingan ordinary anuity and an annuity due, which of n the future value ofan otert >) The future value of an annuity due is always greater tha identical ordinary annuity, b. The future value of an ordinary annuity is a otherwise identical annuity due. 6 Theft vue of maou rays stan the tre vale ofan otherwise ei ordinary annuity, since one less payment is received with an annuity due. | 4, All things being equal, one would prefer to receive an ordinary annuity compared annuity due. | | | ways greater than the future value —__—EeeEE_—h lt—te gytbebTne Volwottongy 11. Which of the following statements is most correct? 3. A5-year P100 annuity due will havea higher present value than a 5-year P100 ordinary annuity b, A 15-year mortgage will have larger monthly payments than a 30-year morlgage of the same ‘amount and same interest rate «.faninvestment ays 10 percent interest compounded annually, is effective rate will also be 10 percent 4. Statements A and Care correct ® ‘All of the statements above are correct {2 Which ofthe following bank accounts has the highest effective annual return? . ‘a. Anaccount that pays 10 percent annual nominal interest with monthly compounding ‘Anacrount that pays 10 percent annual nominal interest with daily compounding <. Anaccount that pays 10 percent annual nominal interest with annual compounding 4, Anaccount that pays 9 percent annual nominal interest with daily compounding te Allof the investments have the same effective annwal return 13, You are interested in investing your money in a bank account Which of the following banks provides you wih the highest effective rae of interest? ‘a. Bank 1;8% with monthly compounding bb Bank2;8% withannaal compounding, -Bank3;8% with quarterly compounding Banke4;8% with daily (365-day) compounding ‘e. Bank5;78% with annual compounding 11.4 P10, 00 loan isto be amortized over 5 yeas, with annual end-ofyear payments, Given the following facts, which of these statements is mast correct? ‘The annual payments would be large ifthe interest rate were lower Fifth loan were amortized over 10 years rather than 5 years, and ifthe interest rate were the same in eter case, the fst payment would include more pesos of interest under the 5-year amortization plan The payment would havea higher propor d. The proportion of interest versus principal repayment payments ie) ‘The proportion of each payment that represents interest as opposed to repayment of principal ‘would be higher if the intrest rate were higher tion of interest than the first payment it would be the same for each of the 5 15. Which of the following statements is correct? a The first payment under a 3-year, annual payment, amortized loan for 1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent b. If you are lending money, then, based on effective interest rates, ou should prefer to lend ata 10 percent nominal, or quoted, rate but with semiannual payments, rather than at a 10.1 percent nominal rate with annal payments. However, asa borrower you should prefer the annual payment loan CC —————— tow x 0.9004 = 0.40 3373 22 hon Ke Sill G60 ee 8- do v0 ae rn" Be jon KOMSNIE a4}20 © « ism x0.594b 6140 9 «al 409 Ae : i iy 45, Suppose you invest_P500 in a mutual fund today ‘and_P600 in one year. If the fund pays 2% annually, how much wall you Rave in two 9% annually, how much will you have in two years? ae emo x LIl> $4405 Y 6:0 x .qg10 = 65518 as 2.1812 Fads 16. Dannah wants to determine the amount of money he would obtain from the interest of PHP 2000 at 16% compounded quarterly for5 years. How much will he receive? 5. PROBA Gres We 2ow x Loy"# 210123 « a1. 2 aS pena T4seaas 17, Emeliza invested PHP 2500 at 9% per annum, comy inded semi-annually. How much would he received after 8 years? an fue aso (v4.00 b, 4981.41 = q —L Osis = ase X 2.57234 $055.4 18. Jin plans to deposit PHP-6,500.into an account. paying 8% annual interest compounded monthly, how mach money wil bein the account after 7 yeas? a. 9.78233, oxi b. 680047, 4V = 6S K(L4 Oo @ru3s824. o . 10,567.41 = GAO x Layo? fll, 356.24 ee (Crake Tne Vote Money 19. Find the amount ofthe principal 2,000 php borrowed at 6% compounded! annually for 3 yay, =¥ Cd 23,820 Aus 2000 x L910 . 23,800 e 33, 420 ad. 24800 20, Given the information in number 19, what isthe, ‘compound interest? 93820 = 20,00 ‘362. 21. If a Philippines Savings bond can be purchased for 260 and has a maturity value at the end of 10,years of P00, what is the annualrate of return on the bond? a 412% F gx = WO x (1t4\" v0 = Go x (1400460) b, 191% $02 ox Grog)? | O° > c 236% ot 6 33.62% : growing dividend over the lst 15 pany which consistently paid 2 ved B5.00 per share an inthe 154 year, 22. Ems owns stock in a com ‘Downed the stock, she: receit ends over the last 15 years? years. The frst year Mama ; eat ved PRON pt share. What isthe growth ate of div a. 3.14% gesx qo)" ge Sx (IHEP )N gesxciyo.o2u)" base scchivano [SE 2441 tase! 341% a “ =H nh @ 30% tat Ua 28, How long would it take for Emeliza Gil to save an adequate amount for retirement if he + into an account beginning one year from today that pays 18% per qld deposits P500, 000 per yea! year if he wishes to havea toa of P10, 00,000 at ei ae Ya. 92months or Ve {ears roomin = S000 4(188) 1 10,002.00 = St, © 922yea Dit . ee BAS years madhow0 * 50,000 x I Teg tmw.goof 20°00 dd Vv 7d. SH months or year, 24, What annual rate of seturn would Eme need to ear if he deposits P18000 per year in 29 Mer abe C7) account beginning today in order to havea total of P800,000 in 20 years? 00,000 29,000 (4.0622) a aa @d,000 = Ito00 x (140%ad)4 ar , ar ®. 62% 000 > Wx000 y 40” 22 | $00,000 < 20,000 x Yo 6.27% sm f 71,v00 $00,000 = 900,000 / 25, Emeliza P, is planning to retire. If she deposit i , posits 25,000 beginning one year from today that PPS LC re de bictste len toal anita EOI J years Q Dyears + 5,000 (ony 07 = £240,000 S400 ¥ 5¢ an investment to. louble in value if itis invested at 3% a. Pct inne — De Chtrin) 21, Goo a teapot RANE Wl = 23.19 yeas 4 es LC tog?

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