Chapter 4
Time Value of Money
Quiz Questions
Multiple Choice
1. Which of the following refers to the purchasing power of a dollar?
a. Nominal value
b. Real value
c. Future value
d. Present value
e. None of the above
2. In its policies regarding deferred salaries, which of the following leagues has stated that
deferred payments must be placed by the team in a league fund for administration and
future disbursement?
a. National Basketball Association
b. Major League Soccer
c. National Hockey League
d. National Football League
e. Major League Baseball
3. The owners of which franchise agreed to a perpetuity when they negotiated to fold their
team after the ABA and NBA merger.
a. New York Nets
b. Denver Nuggets
c. San Antonio Spurs
d. Indiana Pacers
e. St. Louis Spirits
4. Which of the following is today’s value of a future cash flow?
a. Nominal value
b. Real value
c. Future value
d. Present value
e. None of the above
5. What is a measure of risk or uncertainty of time?
a. Inflation rate
b. Interest rate
c. Business activity rate
d. Development rate
e. Discount rate
6. Which of the following is calculated by investigating changes in the Consumer Price
Index (CPI)?
a. Inflation rate
b. Interest rate
c. Business activity rate
d. Development rate
e. Discount rate
7. A series of equal payments or receipts made at any interval of time is referred to as
which of the following?
a. Cash inflow
b. Cash outflow
c. Annuity
d. Lump sum
e. None of the above
8. Which of the following is a single cash flow per year forever into the future?
a. Annuity
b. Infinite annuity
c. Perpetuity
d. Inflation rate
e. Infinite cash flow
1. T or F A dollar could purchase more goods or services in the 1960s than in the 2020s.
2. T or F Risk often leads to financial losses.
3. T or F Until recently, the NFL, NBA, and NHL had few contracts with deferred
compensation.
4. T or F Players who sign long-term guaranteed contracts and then become injured or
perform poorly often have their contracts rescinded.
5. T or F Compound interest is calculated only on principal.
6. T or F Annuity payments may only occur annually.
7. T or F To calculate the future value of an annuity, a financial manager needs to know
the payment, rate of interest per period, and the present value of the principal.
8. T or F To determine the real change in value compare the future value of a single
payment with the expected rate of inflation.
9. T or F In many financial arrangements, interest is compounded each quarter, month,
week, or, in some cases, day.
10. T or F To calculate the present value of an annuity, a financial manager needs to know
the payment per period, discount rate, and the number of periods.
Answers to Quiz Questions
Multiple Choice
True/False