FOUNDATIONS OF FINANCE (BMAN23000) – TIME VALUE OF
MONEY (TVM) EXAM | QUESTIONS AND ANSWERS | VERIFIED
ANSWERS | LATEST EXAM UPDATE
Multiple Choice Questions (MCQs)
1. If you invest $1,000 today at an annual interest rate of 5%, how much
will it be worth in 3 years?
A) $1,150.00
B) $1,157.63
C) $1,200.00
D) $1,250.00
Answer: B) $1,157.63
2. The process of determining the value today of a payment to be received
in the future is called:
A) Compounding
B) Discounting
C) Inflation adjustment
D) Accumulation
Answer: B) Discounting
3. A $10,000 investment earns 6% interest annually. Its value after 5 years,
compounded annually, is:
A) $12,500
B) $13,382
C) $13,760
D) $14,000
Answer: B) $13,382
4. An ordinary annuity pays $500 at the end of each year for 4 years. If the
discount rate is 8%, its present value is approximately:
A) $1,620
B) $1,735
C) $1,850
D) $1,920
Answer: B) $1,735
5. A perpetuity is an annuity that:
A) Pays for a fixed period
B) Pays indefinitely
C) Has a fixed principal
, D) Grows at a fixed rate
Answer: B) Pays indefinitely
6. If $5,000 is invested for 10 years at 7% annual interest, compounded
annually, the future value is closest to:
A) $9,000
B) $9,835
C) $9,870
D) $10,000
Answer: C) $9,870
7. The formula for the future value of a single sum is:
A) FV = PV × (1 + r)^n
B) FV = PV ÷ (1 + r)^n
C) FV = PV × r × n
D) FV = PV ÷ r × n
Answer: A) FV = PV × (1 + r)^n
8. The present value of $1,000 to be received in 5 years at a 6% discount
rate is approximately:
A) $735
B) $747
C) $790
D) $800
Answer: B) $747
9. Compounding more frequently than annually results in:
A) Lower future value
B) Higher future value
C) No effect
D) Lower present value
Answer: B) Higher future value
10.If $1,200 is invested at 8% compounded semi-annually for 3 years, the
future value is:
A) $1,480
B) $1,512
C) $1,540
D) $1,560
Answer: B) $1,512
11.The effective annual rate (EAR) is always:
A) Equal to the nominal rate
, B) Less than the nominal rate
C) Greater than the nominal rate if compounding occurs more than once
per year
D) Irrelevant for TVM calculations
Answer: C) Greater than the nominal rate if compounding occurs more
than once per year
12.Which of the following is an example of an ordinary annuity?
A) Rent paid at the beginning of each month
B) Bond interest paid annually at year-end
C) Lottery prize paid as a lump sum
D) Perpetual dividend
Answer: B) Bond interest paid annually at year-end
13.The present value of an ordinary annuity formula is:
A) PV = PMT × [(1 – (1 + r)^–n) ÷ r]
B) PV = PMT ÷ [(1 – (1 + r)^–n) ÷ r]
C) PV = PMT × [(1 + r)^n – 1 ÷ r]
D) PV = PMT × n ÷ (1 + r)
Answer: A) PV = PMT × [(1 – (1 + r)^–n) ÷ r]
14.A $2,000 annual payment perpetuity has a discount rate of 5%. Its present
value is:
A) $20,000
B) $40,000
C) $25,000
D) $30,000
Answer: B) $40,000
15.Discounting is the reverse process of:
A) Accumulation
B) Inflation adjustment
C) Depreciation
D) Amortization
Answer: A) Accumulation
16.If $1,500 is invested today at 6% for 8 years, compounded quarterly, the
future value is closest to:
A) $2,500
B) $2,625
C) $2,700
, D) $2,750
Answer: B) $2,625
17.The future value of a 5-year annuity of $1,000 per year at 6% interest is:
A) $5,000
B) $5,638
C) $5,600
D) $5,700
Answer: B) $5,638
18.Which of the following increases the present value of a future sum?
A) Higher discount rate
B) Longer time period
C) Lower discount rate
D) Smaller future value
Answer: C) Lower discount rate
19.An annuity due differs from an ordinary annuity because payments occur:
A) At the beginning of the period
B) At the end of the period
C) Only once
D) Indefinitely
Answer: A) At the beginning of the period
20.If $10,000 is invested for 3 years at 5% annual interest, compounded
monthly, the future value is closest to:
A) $11,500
B) $11,616
C) $11,580
D) $11,600
Answer: B) $11,616
21.The discount factor is:
A) 1 ÷ (1 + r)^n
B) 1 × (1 + r)^n
C) PV × FV
D) FV ÷ PV
Answer: A) 1 ÷ (1 + r)^n
22.Which scenario best illustrates compounding?
A) Receiving $100 in the future and calculating its present value
B) Earning interest on both principal and previously earned interest
C) Receiving a lump sum today
MONEY (TVM) EXAM | QUESTIONS AND ANSWERS | VERIFIED
ANSWERS | LATEST EXAM UPDATE
Multiple Choice Questions (MCQs)
1. If you invest $1,000 today at an annual interest rate of 5%, how much
will it be worth in 3 years?
A) $1,150.00
B) $1,157.63
C) $1,200.00
D) $1,250.00
Answer: B) $1,157.63
2. The process of determining the value today of a payment to be received
in the future is called:
A) Compounding
B) Discounting
C) Inflation adjustment
D) Accumulation
Answer: B) Discounting
3. A $10,000 investment earns 6% interest annually. Its value after 5 years,
compounded annually, is:
A) $12,500
B) $13,382
C) $13,760
D) $14,000
Answer: B) $13,382
4. An ordinary annuity pays $500 at the end of each year for 4 years. If the
discount rate is 8%, its present value is approximately:
A) $1,620
B) $1,735
C) $1,850
D) $1,920
Answer: B) $1,735
5. A perpetuity is an annuity that:
A) Pays for a fixed period
B) Pays indefinitely
C) Has a fixed principal
, D) Grows at a fixed rate
Answer: B) Pays indefinitely
6. If $5,000 is invested for 10 years at 7% annual interest, compounded
annually, the future value is closest to:
A) $9,000
B) $9,835
C) $9,870
D) $10,000
Answer: C) $9,870
7. The formula for the future value of a single sum is:
A) FV = PV × (1 + r)^n
B) FV = PV ÷ (1 + r)^n
C) FV = PV × r × n
D) FV = PV ÷ r × n
Answer: A) FV = PV × (1 + r)^n
8. The present value of $1,000 to be received in 5 years at a 6% discount
rate is approximately:
A) $735
B) $747
C) $790
D) $800
Answer: B) $747
9. Compounding more frequently than annually results in:
A) Lower future value
B) Higher future value
C) No effect
D) Lower present value
Answer: B) Higher future value
10.If $1,200 is invested at 8% compounded semi-annually for 3 years, the
future value is:
A) $1,480
B) $1,512
C) $1,540
D) $1,560
Answer: B) $1,512
11.The effective annual rate (EAR) is always:
A) Equal to the nominal rate
, B) Less than the nominal rate
C) Greater than the nominal rate if compounding occurs more than once
per year
D) Irrelevant for TVM calculations
Answer: C) Greater than the nominal rate if compounding occurs more
than once per year
12.Which of the following is an example of an ordinary annuity?
A) Rent paid at the beginning of each month
B) Bond interest paid annually at year-end
C) Lottery prize paid as a lump sum
D) Perpetual dividend
Answer: B) Bond interest paid annually at year-end
13.The present value of an ordinary annuity formula is:
A) PV = PMT × [(1 – (1 + r)^–n) ÷ r]
B) PV = PMT ÷ [(1 – (1 + r)^–n) ÷ r]
C) PV = PMT × [(1 + r)^n – 1 ÷ r]
D) PV = PMT × n ÷ (1 + r)
Answer: A) PV = PMT × [(1 – (1 + r)^–n) ÷ r]
14.A $2,000 annual payment perpetuity has a discount rate of 5%. Its present
value is:
A) $20,000
B) $40,000
C) $25,000
D) $30,000
Answer: B) $40,000
15.Discounting is the reverse process of:
A) Accumulation
B) Inflation adjustment
C) Depreciation
D) Amortization
Answer: A) Accumulation
16.If $1,500 is invested today at 6% for 8 years, compounded quarterly, the
future value is closest to:
A) $2,500
B) $2,625
C) $2,700
, D) $2,750
Answer: B) $2,625
17.The future value of a 5-year annuity of $1,000 per year at 6% interest is:
A) $5,000
B) $5,638
C) $5,600
D) $5,700
Answer: B) $5,638
18.Which of the following increases the present value of a future sum?
A) Higher discount rate
B) Longer time period
C) Lower discount rate
D) Smaller future value
Answer: C) Lower discount rate
19.An annuity due differs from an ordinary annuity because payments occur:
A) At the beginning of the period
B) At the end of the period
C) Only once
D) Indefinitely
Answer: A) At the beginning of the period
20.If $10,000 is invested for 3 years at 5% annual interest, compounded
monthly, the future value is closest to:
A) $11,500
B) $11,616
C) $11,580
D) $11,600
Answer: B) $11,616
21.The discount factor is:
A) 1 ÷ (1 + r)^n
B) 1 × (1 + r)^n
C) PV × FV
D) FV ÷ PV
Answer: A) 1 ÷ (1 + r)^n
22.Which scenario best illustrates compounding?
A) Receiving $100 in the future and calculating its present value
B) Earning interest on both principal and previously earned interest
C) Receiving a lump sum today
