Time Value of Money Multiple Choice Questions and 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

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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.

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Answer: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

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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

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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

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