5/15/2019 Time Value of Money MCQs | Accountancy Knowledge

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Time Value of Money MCQs

Contents [show]

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 2

(c) Present value

(d) Simple interest

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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

3. Nominal Interest Rate is also known as?

(a) Annual percentage rate

(b) Effective interest Rate

(c) Periodic interest rate

(d) Coupon rate

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
2
(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

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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

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

7. Interest paid (earned) on both the original

principal borrowed (lent) and previous interest
allowed (earned) is often referred to as
__________?

(a) Compound interest

2
(b) Double interest

(c) Simple interest

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(d) Present value

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

9. The real rate of interest reflects compensation

for?

(a) Present value

(b) Future value

(c) Time value of money

(d) None of above

10. Interest has 3 types?

(a) Fixed rate, current rate, market rate

(b) Market rate, combination rate, fixed rate

2

(c) Fixed rate, floating rate, current rate

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(d) Fixed rate, floating rate, combination rate

>> Read Time Value of Money…

MCQs 11-20

11. The basic rule of the time value of money is?

(a) Investments will always be worth more tomorrow than they are
today

(b) Its always wiser to save a dollar for tomorrow than to spend it today

(c) A dollar in hand today is worth more than a dollar promised at some
time in the future

(d) All of the above express an aspect of the basic rule of time value of
money

12. A decrease in the supply for loanable funds,

holding demand constant, will cause interest
rates to?

(a) Increase

(b) Decrease

2
(c) Stay the same

(d) Not enough information to tell

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13. The value of money results from?

(a) Its backing

(b) Rates set by the State Bank

(c) Its purchasing power

(d) None of the above

14. The basic price that equates the demand for

and supply of loanable funds in the financial
markets is the _______?

(a) Interest rate

(b) yield curve

(c) Term structure

(d) Cash price

15. If the interest rate is greater than 0%, then a

dollar today is worth?

(a) Less than a dollar tomorrow

(b) The same as a dollar tomorrow

(c) More than a dollar tomorrow

2

(d) There is not sufficient information to tell

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16. In an inflationary period, interest rates have a

tendency to?

(a) Fall

(b) Rise

(c) Stay the same

(d) Act erratically

17. Which of the following is not a determinant of

market interest rates?

(a) The inflation premium

(b) The maturity risk premium

(c) The volatility risk premium

(d) The real rate of interest

18. An unexpected increase in inflation should?

(a) Increase the demand for loanable funds

(b) Decrease the interest rate on loans

(c) Increase the interest rate on loans

2
(d) None of the above

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19. If the interest rate is less than 0%, then a

dollar today is worth?

(a) More than a dollar tomorrow

(b) The same as a dollar tomorrow

(c) Less than a dollar tomorrow

(d) There is not sufficient information to tell

20. The risk-free interest rate is composed of?

(a) An inflation premium and a default risk premium

(b) A default risk premium and a maturity risk premium

(c) A real rate of interest and a liquidity premium

(d) A real rate of interest and an inflation premium

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Related Topics
Time Value of Money Formula Sheet

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