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# Time value of money concept

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1. The time value of money concept rests on which of the following principles?

a. a dollar today is worth more than a dollar in the future

b. A dollar in the future is worth more than a dollar today

c. a dollar is always worth the same amount

d. time is money

e. a dollar should be spent immediately to get the most value

2. In a rare moment of generosity, you give your nephew \$100 on his first birthday. Your nephew's mother, however, knows the time value of money, so she invests the money in a 20-year 7% CD. (At maturity the CD pays back the principal plus accumulated interest at 7% a year.) If your nephew cashes in the CD at maturity, how much will he receive?

a. \$107

b. \$358

c. \$387

d. \$2,140

3. In November 1998 you bought 100 shares of Microsoft stock for \$35.375 a share. In November 2000, hearing about an unfavorable ruling against Microsoft by a Federal judge, you sold your stock for \$92.5625 a share. What was your average annual rate of return on your Microsoft investment? (disregard dividends and commissions)

a. 262%

b. 62%

c. 585%

d. 1.6%

#### Solution Preview

1. The time value of money concept rests on which of the following principles?

a. a dollar today is worth more than a dollar in the future

2. In a rare moment of generosity, you give your nephew \$100 on his first birthday. Your nephews mother, however, knows the ...

#### Solution Summary

Time value of money concept

\$2.19