FINANCE 409 QUIZ #1 QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026

FINANCE 409 QUIZ #1 QUESTIONS WITH CORRECT ANSWERS LATEST UPDATE 2026 Why does a time line need at least one negative and one positive cash flow? A) Because deposits earn a positive rate of interest. B) You must give in order to receive. C) To compensate for the time value of money. D) You don't need at least one of each. - Answers B) You must give in order to receive. Which of the following is NOT true when developing a time line? A. Cash inflows are designated with a positive number. B. Cash outflows are designated with a positive number. C. The cost is known as the interest rate. D. The time line shows the magnitude of cash flows at different points in time. - Answers B. Cash outflows are designated with a positive number. . People borrow money because they expect: A. their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan. B. the time value of money to apply only if they are saving money. C. interest rates to rise. D. that consumers don't need to calculate the impact of interest on their purchases. - Answers A. their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan. How are future values affected by changes in interest rates? A. The lower the interest rate, the larger the future value will be. B. The higher the interest rate, the larger the future value will be. C. Future values are not affected by changes in interest rates. D. One would need to know the present value in order to determine the impact. - Answers B. The higher the interest rate, the larger the future value will be. How are present values affected by changes in interest rates? A. The lower the interest rate, the larger the present value will be. B. The higher the interest rate, the larger the present value will be. C. Present values are not affected by changes in interest rates. D. One would need to know the future value in order to determine the impact. - Answers A. The lower the interest rate, the larger the present value will be. We call the process of earning interest on both the original deposit and on the earlier interest payments: A. discounting. B. multiplying. C. compounding. D. computing. - Answers C. compounding. The process of figuring out how much an amount that you expect to receive in the future is worth today is called: A. discounting. B. multiplying. C. compounding. D. computing. - Answers A. discounting. The interest rate, i, which we use to calculate present value, is often referred to as the: A. discount rate. B. multiplier. C. compound rate. D. dividend. - Answers A. discount rate. The Rule of 72 is a simple mathematical approximation for: A. the present value required to double an investment. B. the future value required to double an investment. C. the payments required to double an investment. D. the number of years required to double an investment. - Answers D. the number of years required to double an investment. With regard to money deposited in a bank, future values are: A. smaller than present values. B. larger than present values. C. equal to future values. D. are completely independent of present values. - Answers B. larger than present values. A dollar paid (or received) in the future is A. worth more than a dollar paid (or received) today. B. worth as much as a dollar paid (or received) today. C. not worth as much as a dollar paid (or received) today. D. not comparable to a dollar paid (or received) today. - Answers C. not worth as much as a dollar paid (or received) today. When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining: A. the annual rate earned. B. the annual payments required. C. whether the present value or the future value is a cash inflow. D. whether the present value or the future value is a cash outflow. - Answers A. the annual rate earned. When calculating the number of years needed to grow an investment to a specific amount of money, A. the lower the interest rate, the shorter the time period needed to achieve the growth. B. the higher the interest rate, the shorter the time period needed to achieve the growth. C. the interest rate has nothing to do with the length of the time period needed to achieve the growth. D. the Rule of 72 is the only way to calculate the time period needed to achieve the growth. - Answers B. the higher the interest rate, the shorter the time period needed to achieve the growth.