Money and Time Value of Money: Interactive Learning Quizzes

Question 1

How does compound interest significantly boost an investment's growth over time?

Accepted Answer

A £1,000 investment with 5% compound interest for a decade grows to £1,628.89.

Answer

A £1,000 investment with 5% simple interest for a decade becomes £1,500.

Question 2

Which type of annuity involves regular payments received at the beginning of each period?

Accepted Answer

Annuity due

Answer

Ordinary annuity

Answer

Perpetuity

Answer

Growing annuity

Question 3

Which depreciation method allocates an equal amount of depreciation expense to each year of an asset's useful life?

Accepted Answer

Straight-line method

Answer

Declining balance method

Answer

Units of production method

Answer

Double-declining balance method

Question 4

What is the fundamental assumption underlying compound interest calculations?

Accepted Answer

Interest is added to the principal and interest already earned

Answer

Interest is added to the principal annually

Answer

Interest is earned only on the original principal

Answer

Interest is calculated on a daily basis

Question 5

Differentiate between simple and compound interest.

Accepted Answer

Simple interest is calculated on the original principal only, while compound interest is calculated on the principal and accumulated interest

Answer

Compound interest is calculated on the original principal only, while simple interest is calculated on the principal and accumulated interest

Answer

Compound interest is calculated more frequently than simple interest

Answer

There is no difference between simple and compound interest

Question 6

Calculate the present value of a £10,000 debt repayable in 5 years at an interest rate of 8%.

Accepted Answer

£7,350.30

Answer

£8,140.60

Answer

£6,570.90

Answer

£9,105.80

Question 7

Which of the following formulas calculates compound interest?

Accepted Answer

A = P(1 + r/n)^(nt)

Answer

A = P(1 - r/n)^(nt)

Answer

A = P(1 + r/n)^(n-t)

Answer

A = P(1 - r/n)^(n-t)

Question 8

Which is not a type of annuity?

Accepted Answer

Perpetual annuity

Answer

Ordinary annuity

Answer

Annuity due

Answer

Deferred annuity

Question 9

What is the key difference between simple and compound interest?

Accepted Answer

Simple interest is calculated on the original principal, while compound interest is calculated on the growing balance.

Answer

Compound interest is calculated on the original principal, while simple interest is calculated on the growing balance.

Answer

There is no difference between simple and compound interest.

Answer

Compound interest is calculated more frequently than simple interest.

Question 10

What purpose does 'equivalent cash flow' serve in financial decision-making?

Accepted Answer

Comparing cash flows occurring at different times.

Answer

Assessing investment risk.

Answer

Determining investment returns.

Answer

Calculating asset depreciation.

Question 11

Which formula calculates the internal rate of return (IRR)?

Accepted Answer

IRR = (FV / PV)^(1/n) - 1

Answer

IRR = (FV - PV) / PV

Answer

IRR = (FV - PV) / n

Answer

IRR cannot be calculated using a formula.

Question 12

How does inflation impact the value of future cash flows?

Accepted Answer

Inflation decreases the present value of future cash flows.

Answer

Inflation increases the present value of future cash flows.

Answer

Inflation has no effect on the present value of future cash flows.

Answer

Inflation increases the future value of present cash flows.

Question 13

A loan of £1,000 is borrowed at a compounded annual interest rate of 5%. What will be the future value of the loan after 5 years?

Accepted Answer

£1,286.28

Answer

£1,276.28

Answer

£1,296.28

Answer

£1,306.28

Question 14

Which of the following is an advantage of utilizing annuities?

Accepted Answer

Stable income payments

Answer

Guaranteed growth

Answer

Tax benefits

Answer

Flexibility

Question 15

Which of the following methods allocates the cost of an asset equally over its useful life?

Accepted Answer

Straight-line

Answer

Sum-of-the-years'-digits

Answer

Double-declining balance

Answer

Units-of-production

Question 16

Which of the following is NOT a primary principle of financial decision-making?

Accepted Answer

Short-term focus

Answer

Maximize value

Answer

Consider risks

Answer

Ethical considerations

Question 17

What is the formula for calculating compound interest?

Accepted Answer

I = P(1 + r / n)^(nt)

Answer

I = P(1 + r)^t

Answer

I = P * r * t

Answer

I = P * r / n

Question 18

What is the key difference between simple interest and compound interest?

Accepted Answer

Simple interest is calculated on the original principal only, while compound interest is calculated on the principal plus any accumulated interest.

Answer

Compound interest is calculated on the original principal only, while simple interest is calculated on the principal plus any accumulated interest.

Answer

There is no difference between simple interest and compound interest.

Answer

Simple interest is calculated annually, while compound interest is calculated monthly.

Question 19

An annuity can be defined as:

Accepted Answer

A series of equal payments made at regular intervals.

Answer

A single payment made at a future date.

Answer

A loan that is repaid with interest over a period of time.

Answer

A type of investment that provides a guaranteed return.

Question 20

The present value of a future sum of money is:

Accepted Answer

The amount that would need to be invested today to grow to the future amount at a given interest rate.

Answer

The amount that would be received today if an investment were to mature at a future date.

Answer

The amount that would be paid back over time if a loan were taken out today.

Answer

The amount that would be earned in interest over a period of time.

Question 21

The future value of a present amount is:

Accepted Answer

The amount that an investment will grow to at a future date at a given interest rate.

Answer

The amount that would need to be invested today to receive the future amount.

Answer

The amount that would be paid back over time if a loan were taken out today.

Answer

The amount that would be earned in interest over a period of time.

Question 22

Depreciation refers to:

Accepted Answer

The decrease in value of an asset over time.

Answer

The increase in value of an asset over time.

Answer

A method of accounting for the cost of an asset over its useful life.

Answer

A tax deduction that can be claimed for the cost of an asset.

Question 23

What factors determine the future value of an annuity due?

Accepted Answer

Interest rate, payment periods, and payment amount

Answer

Interest rate only

Answer

Payment amount only

Question 24

Which formula is used to calculate the future value of an investment with compound interest?

Accepted Answer

FV = PV * (1 + r)^n

Answer

FV = PV * (1 + r)

Answer

FV = PV + (PV * r * n)

Answer

FV = (1 + r) * n * PV

Question 25

Define an annuity. Provide the formula for calculating its present value.

Accepted Answer

PV = PMT * ((1 - (1 + r)^-n) / r)

Answer

PV = PMT * (r / (1 + r)^n)

Answer

PV = PMT * (n / (1 + r)^n)

Answer

PV = PMT * (1 + r / (1 - (1 + r)^-n)

Question 26

Determine the future value of £10,000 invested for 5 years at an annual interest rate of 3% compounded annually.

Accepted Answer

£11,592.74

Answer

£12,200.00

Answer

£13,439.16

Answer

£14,257.63

Question 27

Which depreciation method allocates a larger portion of an asset's cost to earlier years?

Accepted Answer

Double-declining balance depreciation

Answer

Straight-line depreciation

Answer

Units-of-production depreciation

Answer

Depreciation based on income

Question 28

Which of the following is the odd one out in terms of interest type?

Accepted Answer

Annual percentage rate (APR)

Answer

Simple interest

Answer

Compound interest

Answer

Periodic interest

Question 29

Annuities involve receiving payments at fixed intervals, which characteristic is not true of them?

Accepted Answer

Different payment amounts

Answer

Fixed payments

Answer

Regular intervals

Answer

Equal time periods between payments

Question 30

A project has a payback period of 3 years. What does this indicate?

Accepted Answer

It will take 3 years to recover the initial investment through cash flow.

Answer

It will generate a profit in 3 years.

Answer

It has a useful life of 3 years.

Answer

It is not a viable project.

Question 31

Which formula accurately calculates compound interest?

Accepted Answer

A = P(1 + r/n)^nt

Answer

A = P(1 + r)^nt

Answer

A = P + Prt

Answer

A = P / (1 + r)^nt

Question 32

If you want to have a certain amount of money in the future, what do you call the amount you need to invest today?

Accepted Answer

Present Value

Answer

Depreciation

Answer

Future Value

Answer

Annuity

Question 33

What do we call the value an investment will have at a specific date in the future?

Accepted Answer

Future Value

Answer

Depreciation

Answer

Annuity

Answer

Present Value

Question 34

What is the name of the process used to calculate the present-day value of a future sum of money?

Accepted Answer

Discounting

Answer

Compounding

Answer

Amortizing

Answer

Capitalizing

Question 35

When interest is calculated on both the original amount and any accumulated interest, what is this called?

Accepted Answer

Compound Interest

Answer

Nominal Interest

Answer

Simple Interest

Answer

Effective Interest

Question 36

What type of investment pays a fixed amount of money regularly over a set period?

Accepted Answer

Annuity

Answer

Share

Answer

Bond

Answer

Perpetuity

Question 37

What is the term for the decrease in an asset's value over time due to normal wear and tear?

Accepted Answer

Depreciation

Answer

Impairment

Answer

Amortization

Answer

Depletion

Question 38

Which formula calculates the present value (PV) of a future lump sum (FV) with interest rate (r) over a number of years (n)?

Accepted Answer

PV = FV / (1 + r)^n

Answer

PMT = PV * r / (1 - (1 + r)^-n)

Answer

FV = PMT * (((1 + r)^n - 1)/r)

Answer

FV = PV * (1 + r)^n

Question 39

You invest £100 at an interest rate of 5% per year. How much will your investment be worth after 5 years with annual compounding?

Accepted Answer

£127.63

Answer

£125.51

Answer

£124.34

Answer

£126.82

Question 40

True or False: An annuity involves a series of equal payments made at regular intervals over a specified period.

Accepted Answer

True

Answer

Not always

Answer

False

Answer

Only in perpetuity

Question 41

Which formula calculates the present value of an annuity where payments are made at the end of each period?

Accepted Answer

PV = PMT/r * ((1 - (1 + r)^-n)/r

Answer

PV = PMT * r * (1 - (1 + r)^-n)

Answer

PV = PMT * n/r

Answer

PV = PMT * (1 + r)^n/r

Question 42

Depreciation refers to:

Accepted Answer

A decrease in the value of an asset over time

Answer

Only applies to physical assets

Answer

Only occurs when an asset is sold

Answer

False

Question 43

Why is the time value of money important in business?

Accepted Answer

It enables informed financial decision-making

Answer

Increase profits

Answer

Reduce risk

Answer

Avoid losses

Question 44

In an annuity due, when is the first payment made?

Accepted Answer

At the beginning of the first period

Answer

At the end of the last period

Answer

In the middle of the first period

Answer

At the end of the first period

Question 45

Which of these best describes an annuity?

Accepted Answer

A series of equal payments made at regular intervals over a set period of time.

Answer

A single lump sum payment made at a specific point in time.

Answer

The total amount of money borrowed or lent.

Answer

The interest earned on an investment over a specific period.

Question 46

What is the best definition of depreciation?

Accepted Answer

The decrease in the value of an asset over time due to wear and tear or becoming outdated.

Answer

The amount of profit made from selling an asset.

Answer

The increase in the value of an asset over time.

Answer

The cost of borrowing money.

Question 47

Which of these does NOT affect the time value of money?

Accepted Answer

The colour of the currency.

Answer

Inflation.

Answer

Time.

Answer

Interest rates.

Question 48

A business invests £10,000 at a 5% simple interest rate. How much interest will they earn after 3 years?

Accepted Answer

£1,500

Answer

£15,000

Answer

£500

Answer

£3,000

Question 49

What is the future value of £5,000 invested for 5 years at a compound interest rate of 8% per annum, compounded annually?

Accepted Answer

£7,346.64

Answer

£6,000

Answer

£7,000

Question 50

A loan of £20,000 is to be repaid in equal annual installments over 5 years at an interest rate of 6% per annum. What is the annual installment amount?

Accepted Answer

£4,833.35

Answer

£6,000

Answer

£5,000

Answer

£4,000

Question 51

What is the present value of £10,000 to be received in 5 years at a discount rate of 10% per annum?

Accepted Answer

£6,209.21

Answer

£7,000

Answer

£8,000

Answer

£5,000

Question 52

A machine purchased for £25,000 depreciates at a rate of 10% per annum using the straight-line method. What is the book value of the machine after 3 years?

Accepted Answer

£17,500

Answer

£15,000

Answer

£22,500

Answer

£20,000

Question 53

Which of the following is NOT a factor that influences the time value of money?

Accepted Answer

The color of the money

Answer

Risk

Answer

Interest rates

Answer

Inflation

Question 54

A company is considering two investment projects. Project A has a higher return on investment but also a higher risk. Project B has a lower return but also a lower risk. Which of the following financial tools would be most helpful in making the decision?

Accepted Answer

Net Present Value (NPV)

Answer

Straight-line Depreciation

Answer

Simple Interest

Answer

Compound Interest

Question 55

What is the main advantage of compounding interest over simple interest?

Accepted Answer

Interest is earned on previously earned interest, leading to faster growth.

Answer

It is easier to calculate.

Answer

It offers a lower rate of return.

Question 56

A business is considering purchasing a new delivery van. Which of the following factors should they consider when calculating the present value of the van's future cash flows?

Accepted Answer

The expected useful life of the van

Answer

The number of employees using the van

Answer

The color of the van

Question 57

Which of the following is NOT a common method of depreciation?

Accepted Answer

Exponential Depreciation

Answer

Declining Balance Depreciation

Answer

Units of Production Depreciation

Answer

Straight-line Depreciation