FIN 072

Financial Market
Quiz 2 – Part 2
TRUE or FALSE. Write TRUE if the
statement is correct, otherwise,
FALSE.
1

Starting to invest early for

retirement reduces the benefits of
compound interest.
2

A time line is not meaningful

unless all cash flows occur
annually
3

Time lines cannot be constructed in

situations where some of the cash flows
occur annually but others occur
quarterly.
4

Some of the cash flows shown on a time

line can be in the form of annuity
payments but none can be uneven
amounts.
5

If the discount (or interest) rate is

positive, the present value of an expected
series of payments will always exceed the
future value of the same series.
6

Disregarding risk, if money has time

value, it is impossible for the future
value of a given sum to exceed its
present value.
7

If a bank compounds savings

accounts quarterly, the nominal rate
will exceed the effective annual rate.
8

A “growing annuity” is any cash

flow stream that grows over time.
9

The greater the number of compounding periods

within a year, then (1) the greater the future value
of a lump sum investment at Time 0 and (2) the
greater the present value of a given lump sum to be
received at some future date.
10

The present value of a future sum

increases as either the discount rate or
the number of periods per year
increases, other things held constant.