Unit 7 Exam: Time Value of Money

Question 1

The time value of money is the present:

a. income
b. worth of future income
c. worth of past income
d. worth of past and future income

Answer 1

b. worth of future income (p. 93)

“These simply calculations are the heart of the time value of money analyses for real estate investments. One must select the correct number for the value of time, and one must make reasonable accurate predictions about future income, expenses, and resale proceeds.”

Question 2

The present worth of $5 to be received 15 years from today at a discount rate of 10% is:

a. $0.24
b. $1.20
c. $4.18
d. $2.40

Answer 2

b. $1.20 (p. 92)

(correct answer may be $1.12)

Using a PV calculator:
Future Value (FV): $5
# Periods (N): 15 x 12 (months) = 180
Interest Rate (I/Y): 10 / 12 (months) = 8.333333

Question 3

Income and expenses are netted against each other to arrive at:

a. net income
b. net present value
c. net future value
d. net expenses

Answer 3

a. net income (p. 93)

“Income and expenses are netted against each other to arrive at net income, and then the present value of all the net incomes is discounted to one present value.”