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An Applied Behavioral Science Approach

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Chapter 4—Present Value
MULTIPLE CHOICE 1. Which of the following would you rather have if your rate of discount is 20 percent? a. $300 in one year b. $350 in two years c. $420 in three years d. $1500 in ten years 2. Suppose the rate of discount is 5 percent, 6 percent, 7 percent, or 8 percent. Suppose that you would rather have $425 in one year instead of $400 today. Also, you would rather have $400 today instead of $445 in two years. What is the rate of discount? a. 5 percent b. 6 percent c. 7 percent d. 8 percent 3. The amount of money you would need to invest today to yield a given future amount is called a. future value. b. present value. c. the rate of discount. d. the discount factor. 4. Present value is a. the cost of a bond today, minus the future value of interest payments. b. the future value of interest payments times the rate of discount. c. the future value of interest payments times the discount factor. d. the amount of money you would need to invest today to yield a given future amount. 5. Earning interest on interest that was earned in prior years is called a. discounting. b. compounding. c. present valuing. d. bonding. 6. In the one-period present-value equation, P = F/(1 + i), the term 1 + i is known as a. future value. b. present value. c. the rate of discount. d. the discount factor. 7. In the one-period present-value equation, P = F/(1 + i), the discount factor is a. 1 + i. b. i. c. P. d. F. 8. Discounting is the process of dividing a future value by the ________ to obtain the ________ value. a. discount factor; past b. discount factor; present c. rate of discount; past d. rate of discount; present

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Chapter 4: Present Value

9. In the one-period present-value equation, P = F/(1 + i), the term i is known as a. future value. b. present value. c. the rate of discount. d. the discount factor. 10. In the one-period present-value

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