Question 1

The present value of $121,000 expected one year from today at an interest rate (discount rate)of 10 percent per year is:

Accepted Answer

A) $121,000. 
B) $100,000. 
C) $110,000. 
D) $108,900. 
A) $121,000. 
B) $100,000. 
C) $110,000. 
D) $108,900.

Question 2

An annuity is defined as a set of:

Accepted Answer

A) equal cash flows occurring at equal intervals of time for a specified period. 
B) equal cash flows occurring at equal intervals of time forever. 
C) unequal cash flows occurring at equal intervals of time forever. 
D) unequal cash flows occurring at equal intervals of time for a specified period. 
A) equal cash flows occurring at equal intervals of time for a specified period. 
B) equal cash flows occurring at equal intervals of time forever. 
C) unequal cash flows occurring at equal intervals of time forever. 
D) unequal cash flows occurring at equal intervals of time for a specified period.

Question 3

If the future value of $1 invested today at an interest rate of r percent for n years is 9.6463, what is the present value of $1 to be received in n years at r percent interest rate?

Accepted Answer

A) $9.6463 
B) $1.0000 
C) $0.1037 
D) $0.4132 
A) $9.6463 
B) $1.0000 
C) $0.1037 
D) $0.4132

Question 4

Describe how you would go about finding the present value of any annuity given the formula for the present value of a perpetuity.

Accepted Answer

The present value of any annuity can be

Question 5

What is the present value of a six-year, $5,000 per year annuity at a discount rate of 10 percent?

Accepted Answer

A) $21,776.30 
B) $3,371.91 
C) $16,760.78 
D) $18,327.82 
A) $21,776.30 
B) $3,371.91 
C) $16,760.78 
D) $18,327.82

Question 6

You would like to have enough money saved to receive a growing annuity for 20 years, growing at a rate of 5 percent per year, with the first payment of $50,000 occurring exactly one year after retirement. How much would you need to save in your retirement fund to achieve this goal? The interest rate is 10 percent.

Accepted Answer

A) $1,000,000.00 
B) $425,678.19 
C) $605,604.20 
D) $827,431.28 
A) $1,000,000.00 
B) $425,678.19 
C) $605,604.20 
D) $827,431.28

Question 7

For $10,000, you can purchase a five-year annuity that will pay $2,504.57 per year for five years. The payments occur at the end of each year. Calculate the effective annual interest rate implied by this arrangement.

Accepted Answer

A) 8 percent 
B) 9 percent 
C) 10 percent 
D) 11 percent 
A) 8 percent 
B) 9 percent 
C) 10 percent 
D) 11 percent

Question 8

If the present value annuity factor at 8 percent for 10 years is 6.71, what is the equivalent future value annuity factor?

Accepted Answer

A) 3.108 
B) 14.486 
C) 2.159 
D) 5.384 
A) 3.108 
B) 14.486 
C) 2.159 
D) 5.384

Question 9

If the present value of $1 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1 invested today at an interest rate of r percent for n years?

Accepted Answer

A) $1.3855 
B) $2.594 
C) $1.701 
D) Not enough information is given to solve the problem. 
A) $1.3855 
B) $2.594 
C) $1.701 
D) Not enough information is given to solve the problem.

Question 10

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is:

Accepted Answer

A) $80,000. 
B) $125,000. 
C) $100,000. 
D) $75,000. 
A) $80,000. 
B) $125,000. 
C) $100,000. 
D) $75,000.

Question 11

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly five more years. Assuming a 10 percent annual interest rate, what is the value of this trust?

Accepted Answer

A) $620,921 
B) $683,013 
C) $1,000,000 
D) $1,100,000 
A) $620,921 
B) $683,013 
C) $1,000,000 
D) $1,100,000

Question 12

The rate of return on any perpetuity is equal to its cash flow multiplied by its price.

Accepted Answer

A) True 
 B)False

Question 13

Mr. Hopper expects to retire in 25 years, and he wishes to accumulate $750,000 in his retirement fund by that time. If the interest rate is 10 percent per year, how much should Mr. Hopper put into his retirement fund each year in order to achieve this goal? (Assume that he makes payments at the end of each year.)

Accepted Answer

A) $4,559.44 
B) $2,500 
C) $7,626.05 
D) $8,418.29 
A) $4,559.44 
B) $2,500 
C) $7,626.05 
D) $8,418.29

Question 14

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly four more years. Assuming a 10 percent annual interest rate, what is the value of this trust?

Accepted Answer

A) $683,013 
B) $751,315 
C) $1,000,000 
D) $1,100,000 
A) $683,013 
B) $751,315 
C) $1,000,000 
D) $1,100,000

Question 15

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly four more years. Assuming an 8 percent annual interest rate, what is the value of this trust?

Accepted Answer

A) $918,787 
B) $992,290 
C) $1,000,000 
D) $1,250,000 
A) $918,787 
B) $992,290 
C) $1,000,000 
D) $1,250,000

Question 16

An annuity is an asset that pays a fixed amount each period for a specified number of periods.

Accepted Answer

A) True 
 B)False

Question 17

Define the term perpetuity.

Accepted Answer

A perpetuity is defi

Question 18

The rate of return is also called the:

Accepted Answer

A) discount rate. 
B) discount rate and hurdle rate only. 
C) discount rate, hurdle rate, and opportunity cost of capital. 
D) discount rate and opportunity cost of capital only. 
A) discount rate. 
B) discount rate and hurdle rate only. 
C) discount rate, hurdle rate, and opportunity cost of capital. 
D) discount rate and opportunity cost of capital only.

Question 19

What is the present value of the following cash flows at a discount rate of 9 percent?

Accepted Answer

A) $372,431.81 
B) $450,000.00 
C) $405,950.68 
D) $412,844.04 
A) $372,431.81 
B) $450,000.00 
C) $405,950.68 
D) $412,844.04

Question 20

If the present value annuity factor is 3.8896, what is the present value annuity factor for an equivalent annuity due if the interest rate is 9 percent?

Accepted Answer

A) 3.5684 
B) 4.2397 
C) 3.8896 
D) 5.3127 
A) 3.5684 
B) 4.2397 
C) 3.8896 
D) 5.3127

Exam 2: How to Calculate Present Values

The present value of $121,000 expected one year from today at an interest rate (discount rate)of 10 percent per year is:

An annuity is defined as a set of:

If the future value of $1 invested today at an interest rate of r percent for n years is 9.6463, what is the present value of $1 to be received in n years at r percent interest rate?

Describe how you would go about finding the present value of any annuity given the formula for the present value of a perpetuity.

What is the present value of a six-year, $5,000 per year annuity at a discount rate of 10 percent?

For $10,000, you can purchase a five-year annuity that will pay $2,504.57 per year for five years. The payments occur at the end of each year. Calculate the effective annual interest rate implied by this arrangement.

If the present value annuity factor at 8 percent for 10 years is 6.71, what is the equivalent future value annuity factor?

If the present value of $1 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1 invested today at an interest rate of r percent for n years?

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is:

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly five more years. Assuming a 10 percent annual interest rate, what is the value of this trust?

The rate of return on any perpetuity is equal to its cash flow multiplied by its price.

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly four more years. Assuming a 10 percent annual interest rate, what is the value of this trust?

You just inherited a trust that will pay you $100,000 per year in perpetuity. However, the first payment will not occur for exactly four more years. Assuming an 8 percent annual interest rate, what is the value of this trust?

An annuity is an asset that pays a fixed amount each period for a specified number of periods.

Define the term perpetuity.

The rate of return is also called the:

What is the present value of the following cash flows at a discount rate of 9 percent?

If the present value annuity factor is 3.8896, what is the present value annuity factor for an equivalent annuity due if the interest rate is 9 percent?

Introduction to Corporate Finance

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters