About Future Value of a Single Amount

The money you put down today will develop into a greater sum if you don't touch it. A future value, or FV, is a term used to describe the balance in the future. As the years go by, the amount invested in that single deposit might rise significantly for two reasons:

  • In addition to the interest earned on the initial deposit,
  • Your account will earn interest on the money you deposit.

Compound interest is the process of earning interest on the interest that has already been earned.

Purposes of computing Future Value of a Single Amount (FV)

It is possible to predict how much a deposit, investment, or balance will increase in value in the future if it generates compound interest at a specific rate and is not impacted by any other investments or borrowings. When the cost of an item rises at a consistent pace, it is possible to estimate the future worth of a current purchase by computing the value of that purchase in the future. Another use of the future value formula is to compute the interest rate or the amount of time it takes to obtain a desired future value.

Components of Future Value of a Single Amount (FV)

Present value amount (PV): This may be a single deposit, a current account balance, the current cost of an item, or anything else that is relevant at the time.

Future value amount (FV): This is how much the current value is expected to increase in the near future. It may be the balance of an account in the future, the cost of an item in the future, etc.

Number of time periods (n): Compounding interest is the process of continuously increasing a principal amount over time.

Interest rate for the time period (i): Interest rates are recalculated to be 15% per month when they are compounded annually instead of monthly when they are compounded quarterly.

Following are some of the multiple choice questions on the Future Value of a Single Amount with answers that will help the students in developing their knowledge.

Future Value of a Single Amount MCQ

1. The _______ is the amount of time for which a loan is granted before it has to be repaid

  • term
  • principal 
  • amount financed 
  • final payment 

2. Which one of the following is the correct formula for computing the future value of an annuity?

  • C x (Future value factor - 1) / r
  • C x (Future value factor + 1) / r
  • C / (Future value factor - 1) + r
  • C x (Future value factor + 1) x r

3. A credit card has an APR of 18% and charges interest monthly. The effective annual rate on this account will:

  • be less than 18%
  • be less than or equal to 18%
  • equal 18%
  • be greater than 18%

4. Which one of the following is an annuity but NOT a perpetuity?

  • $300 every two to three weeks for one year
  • A monthly payment of $425 forever
  • Payments on the first day of each month in varying amounts for ten months
  • $600 on the last day of each month for two years

5. The effective annual rate is defined as the interest rate that is:

  • compounded at regular intervals throughout the year.
  • equal to a monthly rate multiplied by twelve.
  • computed by multiplying the rate per period by the number of periods per year.
  • expressed as if it were compounded once per year.

6. An increase in the amount of an annuity payment will:

  • have no effect on the present value of the annuity.
  • decrease the present value of the annuity.
  • increase the value of the annuity present value interest factor.
  • increase the future value of the annuity.

7. The _______ is the portion of the cash price that is owed on an item after making the down payment. 

  • down payment 
  • amount financed 
  • final payment 
  • installment loan

8. The _____ _____ ______ is an index showing the cost of borrowing money on a yearly basis, expressed as a percent

  • repayment schedule 
  • single payment loan 
  • annual percentage rate
  • term 

9. A(n) ______ _______ is a portion of the cash price of an item that has to be paid before financing the rest on credit

  • down payment
  • maturity value 
  • promissory note 
  • final payment 

10. ______ ________ is interest on a loan calculated by basing the time of the loan on a 365-day year

  • ordinary interest 
  • exact interest
  • maturity value 
  • installment loan 

11. A(n) _______ ________ is the payment on a simple interest loan that consists of the remaining balance plus the current month's interest

  • installment loan 
  • down payment 
  • amount financed 
  • final payment

12. A(n) ______ _______ is a loan repaid in equal payments over a specified period of time

  • single payment loan 
  • installment loan
  • maturity value 
  • ordinary interest 

13. The _______ _______ is the total amount that must be repaid on a loan, including the principal borrowed and the interest owed

  • ordinary interest 
  • maturity value
  • repayment schedule 
  • principal 

14. A(n) ______ _______ is a written promise to pay a certain sum of money on a certain date in the future

  • maturity value 
  •  promissory note
  • repayment schedule 
  • installment loan 

15. The _________ ________  is a schedule showing the distribution of interest and principal payments on a loan over the life of the loan

  • repayment schedule
  • promissory note 
  • single payment loan 
  • installment loan 

16. A(n) ______ _______ ______ is a loan that has to be repaid with one payment after a specified period of time

  • exact interest 
  • installment loan 
  • annual percentage rate 
  • single payment loan

17. In a typical loan amortization schedule, the dollar amount of interest paid each period .

  • remains constant with each payment
  • decreases with each payment
  • increases with each payment
  • None of these

18. In calculation of time, value of money, the ''N ''represents

  • number of investment
  • number of installments
  • number of payment periods
  • number of premium received

19. If compounding more time outcome will be greater value, it is choice of?

  • Liabilities holder
  • Borrower
  • Lender
  • None of these

20. As a borrower, you should prefer the bank that ____________________ compound per year?

  • Interest
  • More times
  • Less times
  • None of these

21. How much will Rs. 10,000 grow into in 5 years if you earn 10%?

  • Rs. 16,289
  • Rs. 13,289
  • Rs. 16,105
  • Rs. 13,105

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