Question 1

An investment at 10.47% effective rate compounded monthly is equal to a nominal
(annual) rate of:

Accepted Answer

A)  10.99% 
B)  9.57% 
C)  10% 
D)  None of the above 
A)  10.99% 
B)  9.57% 
C)  10% 
D)  None of the above C

Question 2

If the interest rate is 12%, what is the 2-year discount factor?

Accepted Answer

A)  0.7972 
B)  0.8929 
C)  1.2544 
D)  None of the above 
A)  0.7972 
B)  0.8929 
C)  1.2544 
D)  None of the above A

Question 3

If the present value of $250 expected to be received one year from today is $200, what is the discount rate?

Accepted Answer

A)  10% 
B)  20% 
C)  25% 
D)  None of the above 
A)  10% 
B)  20% 
C)  25% 
D)  None of the above C

Question 4

Define the term "perpetuity."

Accepted Answer

A perpetuity is defi

Question 5

Which of the following statements is true?

Accepted Answer

A)  The process of discounting is the inverse of the process of compounding. 
B)  Ending balances using simple interest is always greater than the ending balance using compound interest at positive interest rates. 
C)  Present value of an annuity due is always less than the present value of an equivalent annuity at positive interest rates. 
D)  All of the above are true. 
A)  The process of discounting is the inverse of the process of compounding. 
B)  Ending balances using simple interest is always greater than the ending balance using compound interest at positive interest rates. 
C)  Present value of an annuity due is always less than the present value of an equivalent annuity at positive interest rates. 
D)  All of the above are true.

Question 6

"Accept investments that offer rates of return in excess of opportunity cost of capital".

Accepted Answer

A) True 
 B)False

Question 7

"Accept investments that have positive net present values" is called the net present value rule.

Accepted Answer

A) True 
 B)False

Question 8

An investment at 12% nominal rate compounded monthly is equal to an annual rate of:

Accepted Answer

A)  12.68% 
B)  12.36% 
C)  12% 
D)  None of the above 
A)  12.68% 
B)  12.36% 
C)  12% 
D)  None of the above

Question 9

What is the net present value of the following cash flow at a discount rate of 11%?

Accepted Answer

A)  $69,108.03 
B)  $231,432.51 
C)  $80,000 
D)  None of the above 
A)  $69,108.03 
B)  $231,432.51 
C)  $80,000 
D)  None of the above

Question 10

At an interest rate of 10%, which of the following cash flows should you prefer?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 11

For $10,000 you can purchase a 5-year annuity that will pay $2358.65 per year for five years. The payments are made at the beginning of each year. Calculate the effective annual interest rate implied by this arrangement: (approximately)

Accepted Answer

A)  8% 
B)  9% 
C)  10% 
D)  none of the above 
A)  8% 
B)  9% 
C)  10% 
D)  none of the above

Question 12

An equal-payment home mortgage is an example of an annuity.

Accepted Answer

A) True 
 B)False

Question 13

John House has taken a 20-year, $250,000 mortgage on his house at an interest rate of 6% per year. What is the value of the mortgage after the payment of the fifth annual installment?

Accepted Answer

A)  $128,958.41 
B)  $211,689.53 
C)  $141,019.50 
D)  None of the above 
A)  $128,958.41 
B)  $211,689.53 
C)  $141,019.50 
D)  None of the above

Question 14

What is the present value annuity factor at an interest rate of 9% for 6 years?

Accepted Answer

A)  7.5233 
B)  4.4859 
C)  1.6771 
D)  None of the above 
A)  7.5233 
B)  4.4859 
C)  1.6771 
D)  None of the above

Question 15

If the one-year discount factor is 0.90, what is the present value of $120 to be received one year from today?

Accepted Answer

A)  $100 
B)  $96 
C)  $108 
D)  None of the above 
A)  $100 
B)  $96 
C)  $108 
D)  None of the above

Question 16

Briefly explain the term "discount rate."

Accepted Answer

Discount rate is the rate of return used

Question 17

The value of a five-year annuity is equal to the sum of two perpetuities. One makes its first
payment in year 1, and the other makes its first payment in year 6.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is generally considered an example of a perpetuity:

Accepted Answer

A)  Interest payments on a 10-year bond 
B)  Interest payments on a 30-year bond 
C)  Consols 
D)  None of the above 
A)  Interest payments on a 10-year bond 
B)  Interest payments on a 30-year bond 
C)  Consols 
D)  None of the above

Question 19

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

Accepted Answer

A)  3.108 
B)  14.487 
C)  2.159 
D)  None of the above 
A)  3.108 
B)  14.487 
C)  2.159 
D)  None of the above

Question 20

If the present value annuity factor at 12% APR for 5 years is 3.6048, what is the equivalent future value annuity factor?

Accepted Answer

A)  2.0455 
B)  6.3529 
C)  1.7623 
D)  None of the above 
A)  2.0455 
B)  6.3529 
C)  1.7623 
D)  None of the above

Exam 2: How to Calculate Present Values

An investment at 10.47% effective rate compounded monthly is equal to a nominal (annual) rate of:

If the interest rate is 12%, what is the 2-year discount factor?

If the present value of $250 expected to be received one year from today is $200, what is the discount rate?

Define the term "perpetuity."

Which of the following statements is true?

"Accept investments that offer rates of return in excess of opportunity cost of capital".

"Accept investments that have positive net present values" is called the net present value rule.

An investment at 12% nominal rate compounded monthly is equal to an annual rate of:

What is the net present value of the following cash flow at a discount rate of 11%?

At an interest rate of 10%, which of the following cash flows should you prefer?

For $10,000 you can purchase a 5-year annuity that will pay $2358.65 per year for five years. The payments are made at the beginning of each year. Calculate the effective annual interest rate implied by this arrangement: (approximately)

An equal-payment home mortgage is an example of an annuity.

John House has taken a 20-year, $250,000 mortgage on his house at an interest rate of 6% per year. What is the value of the mortgage after the payment of the fifth annual installment?

What is the present value annuity factor at an interest rate of 9% for 6 years?

If the one-year discount factor is 0.90, what is the present value of $120 to be received one year from today?

Briefly explain the term "discount rate."

The value of a five-year annuity is equal to the sum of two perpetuities. One makes its first payment in year 1, and the other makes its first payment in year 6.

Which of the following is generally considered an example of a perpetuity:

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

If the present value annuity factor at 12% APR for 5 years is 3.6048, what is the equivalent future value annuity factor?

Goals and Governance of the Firm

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

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

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

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