# 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

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.

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

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

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

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

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

a) True
b) False

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