Question 1

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).

Accepted Answer

A) True 
 B)False

Question 2

Suppose an Exxon Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today?

Accepted Answer

A)  $2,819.52 
B)  $2,967.92 
C)  $3,116.31 
D)  $3,272.13 
E)  $3,435.74 
A)  $2,819.52 
B)  $2,967.92 
C)  $3,116.31 
D)  $3,272.13 
E)  $3,435.74

Question 3

Which of the following investments would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

Accepted Answer

A)  Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments). 
B)  Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). 
C)  Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). 
D)  Investment D pays $2,500 at the end of 10 years (just one payment). 
E)  Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments). 
A)  Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments). 
B)  Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments). 
C)  Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). 
D)  Investment D pays $2,500 at the end of 10 years (just one payment). 
E)  Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

Question 4

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Accepted Answer

A)  $ 969 
B)  $1,020 
C)  $1,074 
D)  $1,131 
E)  $1,187 
A)  $ 969 
B)  $1,020 
C)  $1,074 
D)  $1,131 
E)  $1,187

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).

Suppose an Exxon Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today?

Which of the following investments would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Overview

Financial Markets

Financial Statements

Statement Analysis

Forecasting

Interest Rates

Risk and Return

Bonds

Stocks

Cost of Capital

Capital Budgeting Mc Problems

Cash Flow and Risk

Real Options

Capital Structure

Dividends

Working Capital

Derivatives

Multinational

Hybrid Financing

Mergers

Filters

Exam 5: Time Value of Money

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or less than the nominal rate on the deposit (or loan).

Suppose an Exxon Corporation bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is 4.25%, how much is the bond worth today?

Which of the following investments would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

What's the present value of $1,525 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Overview

Financial Markets

Financial Statements

Statement Analysis

Forecasting

Interest Rates

Risk and Return

Bonds

Stocks

Cost of Capital

Capital Budgeting Mc Problems

Cash Flow and Risk

Real Options

Capital Structure

Dividends

Working Capital

Derivatives

Multinational

Hybrid Financing

Mergers

Filters