Time Value of Money Multiple Choice Questions and Answers | Time Value of Money MCQs Quiz

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Questions
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 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:Using either a or b
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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

Answer: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: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

Answer: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

Answer:2
7 Present value tables for annuity cannot be straight away applied to varied stream of cash flows.
A True
B False

Answer: 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

Answer:Either a or b
9 Interest paid (earned) on only the original principal borrowed (lent) is often referred to as?
A Compound interest
B Future value
C Present value
D Simple interest

Answer: Simple interest
10 Treasury bills are?
A Issued on a premium basis and pay a fixed annual interest rate
B Issued on a discount basis and mature at par
C Issued on a premium basis and mature at par
D Issued on a discount basis and pay a fixed annual interest rate

Answer:Issued on a discount basis and mature at par

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