Question 1

If you invest $100 at 12% APR for three years, how much would you have at the end of 3 years using simple interest?

Accepted Answer

A)  $136 
B)  $140.49 
C)  $240.18 
D)  None of the above 
A)  $136 
B)  $140.49 
C)  $240.18 
D)  None of the above

Question 2

Briefly explain the concept of risk.

Accepted Answer

If the future cash flows from an investm

Question 3

A dollar today is worth more than a dollar tomorrow if the interest rate is positive.

Accepted Answer

A) True 
 B)False

Question 4

In the case of a growing perpetuity, the present value of the cash flow is given by: [C1/(r - g)] where r > g.

Accepted Answer

A) True 
 B)False

Question 5

If the present value of $1.00 received n years from today at an interest rate of r is 0.621, then what is the future value of $1.00 invested today at an interest rate of r% for n years?

Accepted Answer

A)  $1.00 
B)  $1.61 
C)  $1.621 
D)  Not enough information to solve the problem 
A)  $1.00 
B)  $1.61 
C)  $1.621 
D)  Not enough information to solve the problem

Question 6

The opportunity cost of capital is higher for safe investments than for risky ones.

Accepted Answer

A) True 
 B)False

Question 7

A safe dollar is always worth less than a risky dollar because the rate of return on a safe investment is generally low and the rate of return on a risky investment is generally high.

Accepted Answer

A) True 
 B)False

Question 8

Ms. Colonial has just taken out a $150,000 mortgage at an interest rate of 6% per year. If the mortgage calls for equal monthly payments for twenty years, what is the amount of each payment? (Assume monthly compounding or discounting.)

Accepted Answer

A)  $1254.70 
B)  $1625.00 
C)  $1263.06 
D)  None of the above are true 
A)  $1254.70 
B)  $1625.00 
C)  $1263.06 
D)  None of the above are true

Question 9

You would like to have enough money saved to receive $100,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments start one year from the date of your retirement. The interest rate is 12.5%)?

Accepted Answer

A)  $1,000,000 
B)  $10,000,000 
C)  $800,000 
D)  None of the above 
A)  $1,000,000 
B)  $10,000,000 
C)  $800,000 
D)  None of the above

Question 10

One year discount factor at a discount rate of 25% per year is:

Accepted Answer

A)  1.25 
B)  1.0 
C)  0.8 
D)  None of the above 
A)  1.25 
B)  1.0 
C)  0.8 
D)  None of the above

Question 11

What is the present value annuity factor at a discount rate of 11% for 8 years?

Accepted Answer

A)  5.7122 
B)  11.8594 
C)  5.1461 
D)  None of the above 
A)  5.7122 
B)  11.8594 
C)  5.1461 
D)  None of the above

Question 12

Briefly explain, "continuous compounding."

Accepted Answer

As frequency of compounding increases, t

Question 13

For $10,000 you can purchase a 5-year annuity that will pay $2504.57 per year for five years. The payments are made at the end 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 14

The managers of a firm can maximize stockholder wealth by:

Accepted Answer

A)  Taking all projects with positive NPVs 
B)  Taking all projects with NPVs greater than the cost of investment 
C)  Taking all projects with NPVs greater than present value of cash flow 
D)  All of the above 
A)  Taking all projects with positive NPVs 
B)  Taking all projects with NPVs greater than the cost of investment 
C)  Taking all projects with NPVs greater than present value of cash flow 
D)  All of the above

Question 15

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

Accepted Answer

A)  10% 
B)  20% 
C)  30% 
D)  None of the above 
A)  10% 
B)  20% 
C)  30% 
D)  None of the above

Question 16

If you invest $100 at 12% APR for three years, how much would you have at the end of 3 years using compound interest?

Accepted Answer

A)  $136 
B)  $140.49 
C)  $240.18 
D)  None of the above 
A)  $136 
B)  $140.49 
C)  $240.18 
D)  None of the above

Question 17

The net present value formula for one period is:
I. NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; and
III. NPV = C0/C1

Accepted Answer

A)  I only 
B)  I and II only 
C)  III only 
D)  None of the above 
A)  I only 
B)  I and II only 
C)  III only 
D)  None of the above

Question 18

State the "rate of return rule."

Accepted Answer

Invest as long as the rate of

Question 19

The opportunity cost of capital for a risky project is

Accepted Answer

A)  The expected rate of return on a government security having the same maturity as the project 
B)  The expected rate of return on a well-diversified portfolio of common stocks 
C)  The expected rate of return on a portfolio of securities of similar risks as the project 
D)  None of the above 
A)  The expected rate of return on a government security having the same maturity as the project 
B)  The expected rate of return on a well-diversified portfolio of common stocks 
C)  The expected rate of return on a portfolio of securities of similar risks as the project 
D)  None of the above

Question 20

John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for twenty equal annual payments, what is the amount of each payment?

Accepted Answer

A)  $21,796.14 
B)  $10,500.00 
C)  $16,882.43 
D)  None of the above 
A)  $21,796.14 
B)  $10,500.00 
C)  $16,882.43 
D)  None of the above

Exam 2: How to Calculate Present Values

If you invest $100 at 12% APR for three years, how much would you have at the end of 3 years using simple interest?

Briefly explain the concept of risk.

A dollar today is worth more than a dollar tomorrow if the interest rate is positive.

In the case of a growing perpetuity, the present value of the cash flow is given by: [C1/(r - g)] where r > g.

If the present value of $1.00 received n years from today at an interest rate of r is 0.621, then what is the future value of $1.00 invested today at an interest rate of r% for n years?

The opportunity cost of capital is higher for safe investments than for risky ones.

A safe dollar is always worth less than a risky dollar because the rate of return on a safe investment is generally low and the rate of return on a risky investment is generally high.

Ms. Colonial has just taken out a $150,000 mortgage at an interest rate of 6% per year. If the mortgage calls for equal monthly payments for twenty years, what is the amount of each payment? (Assume monthly compounding or discounting.)

One year discount factor at a discount rate of 25% per year is:

What is the present value annuity factor at a discount rate of 11% for 8 years?

Briefly explain, "continuous compounding."

For $10,000 you can purchase a 5-year annuity that will pay $2504.57 per year for five years. The payments are made at the end of each year. Calculate the effective annual interest rate implied by this arrangement: (approximately)

The managers of a firm can maximize stockholder wealth by:

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

If you invest $100 at 12% APR for three years, how much would you have at the end of 3 years using compound interest?

The net present value formula for one period is: I. NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; and III. NPV = C0/C1

State the "rate of return rule."

The opportunity cost of capital for a risky project is

John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for twenty equal annual payments, what is the amount of each payment?

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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