Time Value Of Money - MCQs with answers

Time Value Of Money - MCQs with answers


1. Time value of money indicates that

a) A unit of money obtained today is worth more than a unit of money obtained in future

b) A unit of money obtained today is worth less than a unit of money obtained in future

c) There is no difference in the value of money obtained today and tomorrow

d) None of the above

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ANSWER: a) A unit of money obtained today is worth more than a unit of money obtained in future



2. Time value of money supports the comparison of cash flows recorded at different time period by

a) Discounting all cash flows to a common point of time
b) Compounding all cash flows to a common point of time
c) Using either a or b
d) None of the above.

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ANSWER: c) Using either a or b



3. If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective rate of interest will be:

a) 10% per annum
b) 10.10 per annum
c) 10.25%per annum
d) 10.38% per annum

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ANSWER: d) 10.38% per annum



4. Relationship between annual nominal rate of interest and annual effective rate of interest, if frequency of compounding is greater than one:

a) Effective rate > Nominal rate
b) Effective rate < Nominal rate
c) Effective rate = Nominal rate
d) None of the above

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ANSWER: a) Effective rate > Nominal rate



5. Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per annum. The first installment will be paid at the end of year 5. Determine the amount of equal annual installments if Mr. X wishes to repay the amount in five installments.

a) Rs 19500
b) Rs 19400
c) Rs 19310
d) None of the above

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ANSWER: c) Rs 19310



6. If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per annum, determine the frequency of compounding:

a) 1
b) 2
c) 3
d) None of the above

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ANSWER: b) 2



7. Present value tables for annuity cannot be straight away applied to varied stream of cash flows.

a) True
b) False

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ANSWER: a) True



8. Heterogeneous cash flows can be made comparable by

a) Discounting technique
b) Compounding technique
c) Either a or b
d) None of the above

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ANSWER: c) Either a or b


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