10. Time Value of Money

Which one of the following best defines a nominal interest rate?

Which term describes the process of converting an annuity's accumulated value into a periodic income stream?

If \$1,000 is invested at an annual interest rate of 6\% compounded annually, what will be the value of the investment after 3 years?

The variables in a future value of a lump sum problem include all of the following, except:

If you desire your savings to double in 6 years, what annual rate of return (compounded annually) would you need to earn?

What is the effective annual rate (EAR) if the nominal annual interest rate is 8.25\% compounded quarterly?

What is the simple interest earned on an amount of \$1,000 at an annual interest rate of 4% for 2 years?

Which of the following best describes the primary difference between simple interest and compound interest?

Which of the following best describes the rate for a riskless security that is exposed to changes in inflation?

If an account compounds interest monthly at a nominal rate of 2.5\% per year, what is the effective annual rate (EAR) for the account?

In calculating the yield of an investment, what is the Effective Annual Rate (EAR) equivalent to?

Which of the following best completes the statement: 'The cost of _____ can be observed because it is the interest rate the firm must pay on new loans.'?

If you take out a loan of \$678 at an annual interest rate of 12.5% (simple interest) for one year, how much interest will you pay on the loan at the end of the year?

Many investments require a series of cash flows, which makes understanding the present value of a(n) ______ important.

How can the concept of future value be used to assess the worth of employee benefits such as retirement plans or deferred compensation?