Workbook Chapter 2 – Time Value of Money

SECTION A – MULTIPLE CHOICE QUESTIONS

1. What do we mean when we say that money has “time value”?
   (a) A dollar tomorrow is worth more than a dollar today.
   (b) Money is more valuable if you receive it at the time you need to spend it.
   (c) Both (a) and (b)
   (d) None of the above
2. If interest compounds more than once a year, which of the following will be greater?
   (a) The APR
   (b) The EAR
   (c) The interest rate per compounding period
   (d) Impossible to say without more information
   La Trobe University 4
   SECTION D – CALCULATION QUESTIONS
3. What is the future value of $100 invested for 5 years at an interest rate of 7%? *
4. You win a $3000 lottery prize, and decide to put it away for your retirement. You invest it in a term deposit
   paying 7% p.a., compounded semi‐annually? How much will be in the account after 40 years? *
5. What is the pres
   

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