Trine University

MGT 413

CHAPTER 4: Quiz

Part 1

1)All of the below are correct EXCEPT:

1. 1. $1 today is more valuable than $1 tomorrow
   2. People that value future consumption less than most of the other people will most likely end up being net lenders in the market.
   3. Each individual has his/her own rate of time preference.
   4. Needing to assign correct values to future cash flows of companies is why we need to be able to adjust for the rate of time preference.

2. Assume in year 2 a bank receives a $300 dollar cash deposit from a customer. If we set up the timeline from the point of view of the bank this cash flow will be recorded with a negative sign.
   1. True
   2. False

3. We could think of the point in time on a timeline, represented by number 3 above it, as the beginning of year 4.
   1. True
   2. False

4. Number 6 above a timeline would indicate a point in time that occurs in exactly 6 time periods after period 0.
   1. True
   2. False

5. If you deposit $250 in an account today at 4% annual interest rate, one year from today you will have    in your account.

a. $250

b. $10

c.     $256

d. $260

6. Assume you deposit $300 in an account today and that a friend of yours deposits $300 in an account of another bank, also today. In one year, you have $325 in your account and your friend has $326 in his/her account. We can conclude that
   1. Your friend earned a higher rate of interest than you.