Time Value of Money MCQs (1-10)

1. Interest paid (earned) on only the original principal borrowed (lent) is often referred to as?

(a) Compound interest

(b) Future value

(c) Present value

(d) Simple interest

Correct! Wrong!

2. Treasury bills are?

(a) Issued on a premium basis and pay a fixed annual interest rate

(b) Issued on a discount basis and mature at par

(c) Issued on a premium basis and mature at par

(d) Issued on a discount basis and pay a fixed annual interest rate

Correct! Wrong!

3. Nominal Interest Rate is also known as?

(a) Annual percentage rate

(b) Effective interest Rate

(c) Periodic interest rate

(d) Coupon rate

Correct! Wrong!

4. The concept of compound interest refers to?

(a) The process of gradually retiring a debt through periodic payments of principal and interest

(b) The process of servicing a debt with regular interest payments, followed lump sum payment of principal and interest at the end of the loan term

(c) The process of converting future lump sums and annuities into present values at a stated interest rate

(d) The process of earning interest on an original amount, plus interest on interest previously earned

Correct! Wrong!

5. The value of money to be received in the future is _______the value of the same amount of money in hand today?

(a) Higher than

(b) Lower than

(c) The same as

(d) None of the above

Correct! Wrong!

6. The Time value of money must be considered in total outlay decision because?

(a) Cash inflows and out flows occur at different point

(b) Inflation greatly reduce the outflows

(c) A dollar received in future is more value able than a dollar today

(d) Cash flows are not known with certainty

Correct! Wrong!

7. Interest paid (earned) on both the original principal borrowed (lent) and previous interest allowed (earned) is often referred to as __________?

(a) Compound interest

(b) Double interest

(c) Simple interest

(d) Present value

Correct! Wrong!

8. Money has time value because?

(a) Individuals prefer future consumption to present consumption

(b) Money today is worth more than money tomorrow in terms of purchasing power

(c) There is a possibility of earning risk free return on money invested today

(d) B and C above

Correct! Wrong!

9. The real rate of interest reflects compensation for?

(a) Present value

(b) Future value

(c) Time value of money

(d) None of above

Correct! Wrong!

10. Interest has 3 types?

(a) Fixed rate, current rate, market rate

(b) Market rate, combination rate, fixed rate

(c) Fixed rate, floating rate, current rate

(d) Fixed rate, floating rate, combination rate

Correct! Wrong!

1. Interest paid (earned) on only the original principal borrowed (lent) is often referred to as?

2. Treasury bills are?

3. Nominal Interest Rate is also known as?

4. The concept of compound interest refers to?

5. The value of money to be received in the future is _______the value of the same amount of money in hand today?

6. The Time value of money must be considered in total outlay decision because?

7. Interest paid (earned) on both the original principal borrowed (lent) and previous interest allowed (earned) is often referred to as __________?

8. Money has time value because?

9. The real rate of interest reflects compensation for?

10. Interest has 3 types?

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