## 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

View Answer / Hide Answer**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.

View Answer / Hide Answer**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

View Answer / Hide Answer**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

View Answer / Hide Answer**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

View Answer / Hide Answer**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

View Answer / Hide Answer**7. Present value tables for annuity cannot be straight away applied to varied stream of cash flows.** a) True

b) False

View Answer / Hide Answer**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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