1) The main idea behind the time value of money is that a dollar today is worth more than a dollar in the future because ________.

A) inflation erodes the value of money over time

B) investors can earn a return on money they have today and thereby have more money in the future

C) the future is more uncertain than the present

D) investors are impatient

2) You invest a certain amount of money today. The process of determining how much money that investment will produce in the future is called ________.

A) discounting

B) compounding

C) present value

D) annuitizing the cash flow

3) The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called ________.

A) future value

B) present value

C) future value of an annuity

D) compounded value

4) The future value of a dollar ________ as the interest rate increases and ________ the longer the money remains invested.

A) decreases; decreases

B) decreases; increases

C) increases; increases

D) increases; decreases

5) Calculate the future value of $4,600 received today if it is deposited at 9 percent for three years.

6) Calculate the present value of $89,000 to be received in 15 years, assuming an opportunity cost of 14 percent.