What is the basic principle of the Time Value of Money (TVM)?
a) A dollar today is worth more than a dollar in the future
b) Money has the same value over time
c) Inflation has no effect on money value
d) Interest rates do not impact the value of money
Which of the following best describes present value (PV)?
a) The current worth of a future sum of money
b) The future value of an investment
c) The interest earned over time
d) The initial investment in a project
Which formula is used to calculate the future value (FV) of an investment?
a) FV = PV × (1 + r)^n
b) FV = PV / (1 + r)^n
c) FV = PV × r × n
d) FV = PV × (1 – r)^n
What does ‘n’ represent in time value of money calculations?
a) Interest rate
b) Number of time periods
c) Present value
d) Future value
If the interest rate increases, what happens to the present value of a future amount?
a) It increases
b) It decreases
c) It remains unchanged
d) It becomes equal to the future value
What type of interest is calculated on both the initial principal and accumulated interest?
a) Simple interest
b) Compound interest
c) Discounted interest
d) Fixed interest
Which of the following formulas represents compound interest?
a) A = P (1 + r)^n
b) A = P + (P × r × n)
c) A = P / (1 + r)^n
d) A = P × r × n
The process of calculating present value from a future sum is called:
a) Compounding
b) Discounting
c) Inflation adjustment
d) Amortization
What happens to the future value of an investment when the compounding frequency increases?
a) It increases
b) It decreases
c) It remains constant
d) It becomes negative
Which of the following is an annuity?
a) A lump sum received at the end of 10 years
b) A series of equal payments at regular intervals
c) A one-time investment in stocks
d) A fluctuating monthly income
What is the present value of an annuity?
a) The sum of future payments discounted back to today
b) The total payments received over time
c) The interest rate earned on annuities
d) The total value of an investment at maturity
Which of the following factors affects the time value of money?
a) Inflation
b) Interest rates
c) Risk and uncertainty
d) All of the above
A perpetuity is a type of annuity that:
a) Lasts for a fixed number of years
b) Pays indefinitely
c) Pays only once
d) Decreases over time
What is the effect of inflation on the purchasing power of money?
a) It increases
b) It decreases
c) It remains unchanged
d) It depends on the interest rate
Which of the following best describes the net present value (NPV) of an investment?
a) The difference between present value of cash inflows and outflows
b) The total future earnings of an investment
c) The interest rate applied to a loan
d) The final value of an annuity
What is the discount rate used for in TVM calculations?
a) To increase future value
b) To determine present value
c) To compute simple interest
d) To calculate taxes
What is the relationship between risk and discount rate?
a) Higher risk leads to a lower discount rate
b) Lower risk leads to a higher discount rate
c) Higher risk leads to a higher discount rate
d) Risk has no effect on discount rate
What is the future value of a $1,000 investment at 10% annual interest compounded annually for 3 years?
a) $1,100
b) $1,210
c) $1,331
d) $1,500
If an investor requires a higher return, how does it affect the present value of future cash flows?
a) Present value increases
b) Present value decreases
c) Present value remains the same
d) Present value is not affected
The effective annual rate (EAR) is:
a) The annual interest rate that takes compounding into account
b) The nominal interest rate
c) The simple interest rate
d) The rate at which a loan is issued
What is the main benefit of compounding interest?
a) It maximizes the initial deposit
b) It increases the growth rate of investments over time
c) It eliminates financial risk
d) It avoids taxation on investments
