Question 1

The rate of return is also called:
I. discount rate; II) hurdle rate;
III. opportunity cost of capital

Accepted Answer

A)  I only 
B)  I and II only 
C)  I, II, and III 
D)  None of the given ones 
A)  I only 
B)  I and II only 
C)  I, II, and III 
D)  None of the given ones

Question 2

In the amortization of a mortgage loan with equal payments, the fraction of each payment devoted to interest steadily increases over time and the fraction devoted to reducing the loan decreases steadily.

Accepted Answer

A) True 
 B)False

Question 3

If the five-year present value annuity factor is 3.60478 and four-year present value annuity factor is 3.03735, what is the present value at the $1 received at the end of five years?

Accepted Answer

A)  $0.63552 
B)  $1.76233 
C)  $0.56743 
D)  None of the above 
A)  $0.63552 
B)  $1.76233 
C)  $0.56743 
D)  None of the above

Question 4

Which of the following statements regarding the net present value rule and the rate of return rule is not true?

Accepted Answer

A)  Accept a project if NPV > cost of investment 
B)  Accept a project if NPV is positive 
C)  Accept a project if return on investment exceeds the rate of return on an equivalent investment in the financial market 
D)  Reject a project if NPV is negative 
A)  Accept a project if NPV > cost of investment 
B)  Accept a project if NPV is positive 
C)  Accept a project if return on investment exceeds the rate of return on an equivalent investment in the financial market 
D)  Reject a project if NPV is negative

Question 5

According to the net present value rule, an investment in a project should be made if the:

Accepted Answer

A)  Net present value is greater than the cost of investment 
B)  Net present value is greater than the present value of cash flows 
C)  Net present value is positive 
D)  Net present value is negative 
A)  Net present value is greater than the cost of investment 
B)  Net present value is greater than the present value of cash flows 
C)  Net present value is positive 
D)  Net present value is negative

Question 6

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

Accepted Answer

A)  3.5684 
B)  4.2397 
C)  3.8896 
D)  None of the above. 
A)  3.5684 
B)  4.2397 
C)  3.8896 
D)  None of the above.

Question 7

You would like to have enough money saved to receive $80,000 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 8%)?

Accepted Answer

A)  $7,500,000 
B)  $750,000 
C)  $1,000,000 
D)  None of the above 
A)  $7,500,000 
B)  $750,000 
C)  $1,000,000 
D)  None of the above

Question 8

An initial investment of $500 produces a cash flow $550 one year from today. Calculate the rate of return on the project

Accepted Answer

A)  10% 
B)  15% 
C)  25% 
D)  none of the above 
A)  10% 
B)  15% 
C)  25% 
D)  none of the above

Question 9

Present value of $121,000 expected to be received one year from today at an interest rate
(discount rate) of 10% per year is:

Accepted Answer

A)  $121,000 
B)  $100,000 
C)  $110,000 
D)  None of the above 
A)  $121,000 
B)  $100,000 
C)  $110,000 
D)  None of the above

Question 10

An annuity is defined as

Accepted Answer

A)  Equal cash flows at equal intervals of time for a specified period of time 
B)  Equal cash flows at equal intervals of time forever 
C)  Unequal cash flows at equal intervals of time forever 
D)  None of the above 
A)  Equal cash flows at equal intervals of time for a specified period of time 
B)  Equal cash flows at equal intervals of time forever 
C)  Unequal cash flows at equal intervals of time forever 
D)  None of the above

Question 11

What is the difference between simple interest and compound interest?

Accepted Answer

When money is invested at compound inter

Question 12

If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the 3 years?

Accepted Answer

A)  $1.1905 
B)  $0.84 
C)  $0.89 
D)  None of the above 
A)  $1.1905 
B)  $0.84 
C)  $0.89 
D)  None of the above

Question 13

If the present value of $600 expected to be received one year from today is $400, what is the one-year discount rate?

Accepted Answer

A)  15% 
B)  20% 
C)  25% 
D)  50% 
A)  15% 
B)  20% 
C)  25% 
D)  50%

Question 14

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

Accepted Answer

A)  $9.6463 
B)  $1.00 
C)  $0.1037 
D)  None of the above 
A)  $9.6463 
B)  $1.00 
C)  $0.1037 
D)  None of the above

Question 15

If the future value annuity factor at 10% and 5 years is 6.1051, calculate the equivalent present value annuity factor

Accepted Answer

A)  6.1051 
B)  3.7908 
C)  6.7156 
D)  None of the given ones 
A)  6.1051 
B)  3.7908 
C)  6.7156 
D)  None of the given ones

Question 16

You would like to have enough money saved to receive a $50,000 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 starts on the day of retirement. The interest rate is 8%)?

Accepted Answer

A)  $1,000,000 
B)  $675,000 
C)  $625,000 
D)  None of the above 
A)  $1,000,000 
B)  $675,000 
C)  $625,000 
D)  None of the above

Question 17

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start one year after the retirement)?

Accepted Answer

A)  $736,693.47 
B)  $6,352,567.22 
C)  $1,875,000 
D)  None of the above 
A)  $736,693.47 
B)  $6,352,567.22 
C)  $1,875,000 
D)  None of the above

Question 18

If the present value annuity factor for 10 years at 10% interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

Accepted Answer

A)  6.1446 
B)  7.38 
C)  6.759 
D)  None of the above 
A)  6.1446 
B)  7.38 
C)  6.759 
D)  None of the above

Question 19

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?

Accepted Answer

A)  0.8333 
B)  1.20 
C)  0.20 
D)  None of the above 
A)  0.8333 
B)  1.20 
C)  0.20 
D)  None of the above

Question 20

What is the present value of the following cash flow at a discount rate of 16% APR?

Accepted Answer

A)  $136,741.97 
B)  $122,948.87 
C)  $158,620.69 
D)  None of the above 
A)  $136,741.97 
B)  $122,948.87 
C)  $158,620.69 
D)  None of the above

Exam 2: How to Calculate Present Values

The rate of return is also called: I. discount rate; II) hurdle rate; III. opportunity cost of capital

In the amortization of a mortgage loan with equal payments, the fraction of each payment devoted to interest steadily increases over time and the fraction devoted to reducing the loan decreases steadily.

If the five-year present value annuity factor is 3.60478 and four-year present value annuity factor is 3.03735, what is the present value at the $1 received at the end of five years?

Which of the following statements regarding the net present value rule and the rate of return rule is not true?

According to the net present value rule, an investment in a project should be made if the:

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

An initial investment of $500 produces a cash flow $550 one year from today. Calculate the rate of return on the project

Present value of $121,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is:

An annuity is defined as

What is the difference between simple interest and compound interest?

If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the 3 years?

If the present value of $600 expected to be received one year from today is $400, what is the one-year discount rate?

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

If the future value annuity factor at 10% and 5 years is 6.1051, calculate the equivalent present value annuity factor

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start one year after the retirement)?

If the present value annuity factor for 10 years at 10% interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?

What is the present value of the following cash flow at a discount rate of 16% APR?

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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