In the ever-changing landscape of finance, individuals and businesses alike are constantly seeking answers to a myriad of financial questions. Whether it’s understanding investment strategies, managing personal budgets, or navigating complex tax regulations, financial knowledge is essential. This collection of the top 10 finance questions and answers serves as a comprehensive guide, addressing common queries that span diverse financial domains. From the fundamentals of saving and budgeting to the intricacies of stock market investments and retirement planning, this resource aims to empower readers with accurate and insightful information. By delving into these questions, readers can gain valuable insights into the world of finance, make informed decisions, and enhance their financial well-being. Let’s explore these essential finance questions and provide you with clear, concise, and reliable answers to help you navigate the complexities of the financial world.
Q1. To move a cash flow in time from period 4 to period 6 we would need to
a. Multiply the cash flow by a number greater than one.
b. Square the cash flow.
c. Cut the cash flow in half.
d. Divide the cash flow by a number greater than one.
Q2. Assume we want to move a cash flow from period 7 to period 5. The calculation of the new amount of the cash flow would include
a. Adding the interest rate to number one and raising the result to the power of 2.
b. Adding the interest rate to number one and raising the result to the power of 5.
c. Raising the interest rate to the power of 5.
d. Raising the interest rate to the power of 2.
Q3. Assume you deposit $100 in an account today and that a friend of yours deposits $100 in an account of another bank, also today. In one year, you have $110 in your account and your friend has $108 in his/her account. We can conclude that
a. Your friend earned a lower rate of interest than you.
b. Your friend is getting a compound interest while you are getting a simple interest.
c. Your friend earned a higher rate of interest than you.
d. One of the two banks made a mistake in calculating the interest payment.
Q4. Compounding interest means the following:
a. Interest is earned not only on the initial balance, but also on previously received interest payments.
b. The interest rate is determined by the borrower, not the lender.
c. Dividing the interest into components.
d. Two different interest rates are used for the same loan.
Q5. Which of the following will not increase a present value?
a. None of these answers is correct
b. Increase the interest rate
c. Increase the future value
d. Decrease the number of periods
Q6. A dollar paid (or received) in the future is
a. not comparable to a dollar paid (or received) today.
b. not worth as much as a dollar paid (or received) today.
c. worth more than a dollar paid (or received) today.
d. worth as much as a dollar paid (or received) today.
Q7. The process of figuring out how much an amount that you expect to receive in the future is worth today is called:
Q8. People borrow money because they expect:
a. the time value of money to apply only if they are saving money.
b. interest rates to rise.
c. that consumers don’t need to calculate the impact of interest on their purchases.
d. their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan.
Q9. All of the below are correct EXCEPT:
a. Each individual has his/her own rate of time preference.
b. People who value future consumption less than most of the other people will most likely end up being net lenders in the market.
c. $1 today is more valuable than $1 tomorrow
d. Needing to assign correct values to future cash flows of companies is why we need to be able to adjust for the rate of time preference.
Q10. Assume $500 to be received in year 3 has a present value equal to $400. If we keep the same interest rate assumption, but instead assume that the $500 is received in year 2 we know that the resulting present value must be
a. Equal to $400.
b. Smaller than $400.
c. Larger than $500.
d. Larger than $400.