What does the term 'Time Value of Money' refer to?
The principle that money available today is worth more than the same amount in the future due to its potential earning capacity
The principle that money's value decreases over time
The principle that money's value increases over time
The principle that money's value remains constant over time
#2
Which of the following factors does NOT affect the time value of money?
Interest rate
Inflation
Market demand
Risk
#3
What is the formula for calculating future value (FV) of a present sum of money?
FV = PV / (1 + r)^n
FV = PV * (1 + r)^n
FV = PV * (1 - r)^n
FV = PV / (1 - r)^n
#4
Which of the following is NOT a component of the Time Value of Money concept?
Present value
Future value
Interest rate
Transaction cost
#5
What does the term 'discounting' refer to in the context of Time Value of Money?
Increasing the value of future cash flows to account for risk
Reducing the value of future cash flows to their present value
Investing money at an interest rate
Calculating the future value of an investment
#6
What effect does an increase in the interest rate have on the present value of future cash flows?
Decreases present value
Increases present value
Has no effect on present value
Decreases future value
#7
In the context of Time Value of Money, what does the term 'annuity' refer to?
A one-time lump sum payment
A series of equal payments made at regular intervals
A variable payment made at irregular intervals
A payment made only once a year
#8
Which of the following statements best describes the concept of 'compounding' in Time Value of Money?
Reducing the value of future cash flows to their present value
Investing money at a fixed interest rate
Increasing the value of an investment over time by earning interest on both the initial principal and the accumulated interest
Calculating the future value of an investment
#9
What is the formula for calculating present value (PV) of a future sum of money?
PV = FV / (1 + r)^n
PV = FV * (1 + r)^n
PV = FV * (1 - r)^n
PV = FV / (1 - r)^n
#10
Which of the following best describes the concept of 'opportunity cost' in the context of Time Value of Money?
The cost of an alternative that must be forgone in order to pursue a certain action
The cost of borrowing money from a bank
The cost of investing in a low-risk asset
The cost of purchasing a financial asset
#11
Which of the following is NOT a method to adjust for risk in Time Value of Money calculations?
Discounted Cash Flow (DCF) analysis
Sensitivity analysis
Monte Carlo simulation
Simple interest calculation
#12
What is the formula for calculating the number of periods (n) required to reach a desired future value (FV) with a given interest rate (r) and present value (PV)?
n = log(FV / PV) / log(1 + r)
n = log(PV / FV) / log(1 + r)
n = log(FV * PV) / log(1 + r)
n = log(FV - PV) / log(1 + r)
#13
Which of the following best describes the concept of 'net present value (NPV)' in Time Value of Money calculations?
The difference between the present value of cash inflows and the present value of cash outflows over a period of time
The total amount of cash inflows over a period of time
The future value of cash inflows minus the future value of cash outflows
The present value of cash inflows minus the present value of cash outflows
#14
Which of the following best describes the concept of 'internal rate of return (IRR)' in Time Value of Money calculations?
The interest rate at which the present value of cash inflows equals the present value of cash outflows
The discount rate that makes the net present value of an investment zero
The difference between the present value of cash inflows and the present value of cash outflows
The total amount of cash inflows over a period of time