Question 1. The time value of money concept rests on which of the following principles?
a. a dollar today is worth more than a dollar in the future
b. A dollar in the future is worth more than a dollar today
c. a dollar is always worth the same amount
d. time is money
e. a dollar should be spent immediately to get the most value
Question 2. In a rare moment of generosity, you give your nephew $100 on his first birthday. Your nephew's mother, however, knows the time value of money, so she invests the money in a 20-year 7% CD. (At maturity the CD pays back the principal plus accumulated interest at 7% a year.) If your nephew cashes in the CD at maturity, how much will he receive?
Question 3. In November 1998 you bought 100 shares of Microsoft stock for $35.375 a share. In November 2000, hearing about an unfavorable ruling against Microsoft by a Federal judge, you sold your stock for $92.5625 a share. What was your average annual rate of return on your Microsoft investment? (disregard dividends and commissions)