Exam 15: Trade-Offs Involving Time and Risk

Differentiate between principal and the time value of money.John invests $100 in a bank for a year.At the end of the year,he receives $125.What is the principal and the time value of money in this case?

Scenario: An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent. -Refer to the scenario above.If the investor plans to invest a sum of $4,000,the net present value of Option A is ________.

If the market rate of interest is 8 percent per year,what is the present value of $10,000 to be received for the following periods? a)After 5 years b)After 10 years

Scenario: Tom has two investment options. He can either invest $3,000 in a friend's project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friend's project, he will receive $3,400 after 5 years. -Refer to the scenario above.What is the present value of $3,400 to be received after 5 years?

If an individual receives $10,000 after 2 years by investing $10,000 today,we can conclude that ________.

Scenario: Jenny deposits $3,000 in a bank for a period of 1 year at an annual rate of interest of 10 percent. -Refer to the scenario above.The principal in this case is ________.

The future value of a sum of money deposited in a bank will be higher if ________.