Question 1

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 2

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 3

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 4

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 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 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 7

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 8

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 9

What is the difference between simple interest and compound interest?

Accepted Answer

When money is invested at compound inter

Question 10

Present Value is defined as:

Accepted Answer

A)  Future cash flows discounted to the present at an appropriate discount rate 
B)  Inverse of future cash flows 
C)  Present cash flow compounded into the future 
D)  None of the above 
A)  Future cash flows discounted to the present at an appropriate discount rate 
B)  Inverse of future cash flows 
C)  Present cash flow compounded into the future 
D)  None of the above

Question 11

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 12

State the "net present value rule."

Accepted Answer

Invest in projects with positi

Question 13

What is the present value of the following cash flow at a discount rate of 16% APR?
$\begin{array}{cc}
\underline{  \text {t=1}  } &\underline{  \text {t=2}  } \
-100,00&300,000
\end{array}$

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

Question 14

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

Accepted Answer

A)  $4,559.44 
B)  $2,500 
C)  $7,626.05 
D)  None of the above 
A)  $4,559.44 
B)  $2,500 
C)  $7,626.05 
D)  None of the above

Question 15

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 on the day of retirement)?

Accepted Answer

A)  $736,693.47 
B)  $802,995.88 
C)  $2,043,750 
D)  None of the above 
A)  $736,693.47 
B)  $802,995.88 
C)  $2,043,750 
D)  None of the above

Question 16

If the present value annuity factor at 10% APR for 10 years is 6.1446, what is the equivalent future value annuity factor?

Accepted Answer

A)  3.108 
B)  15.9374 
C)  2.5937 
D)  None of the above 
A)  3.108 
B)  15.9374 
C)  2.5937 
D)  None of the above

Question 17

You would like to have enough money saved to receive an $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 starts on the day of retirement. The interest rate is 10%)?

Accepted Answer

A)  $1,500,000 
B)  $880,000 
C)  $800,000 
D)  None of the above 
A)  $1,500,000 
B)  $880,000 
C)  $800,000 
D)  None of the above

Question 18

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 19

What is the present value of the following cash flow at a discount rate of 9%?
$$\begin{array} { c c c } 
\text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\$ 100,000 & \$ 150,000 & \$ 200,000
\end{array}$$

Accepted Answer

A)  $372,431.81 
B)  $450,000 
C)  $405,950.68 
D)  None of the above 
A)  $372,431.81 
B)  $450,000 
C)  $405,950.68 
D)  None of the above

Question 20

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

Accepted Answer

A) True 
 B)False

Which of the following statements is true?

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

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)

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

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

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

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?

What is the difference between simple interest and compound interest?

Present Value is defined as:

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

State the "net present value rule."

What is the present value of the following cash flow at a discount rate of 16% APR? -100,00 300,000

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 on the day of retirement)?

If the present value annuity factor at 10% APR for 10 years is 6.1446, what is the equivalent future value annuity factor?

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

What is the present value of the following cash flow at a discount rate of 9%? Year 1 Year 2 Year 3 \ 100,000 \ 150,000 \ 200,000

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

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

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters

Exam 2: How to Calculate Present Values

Which of the following statements is true?

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

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)

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

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

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

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?

What is the difference between simple interest and compound interest?

Present Value is defined as:

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

State the "net present value rule."

What is the present value of the following cash flow at a discount rate of 16% APR? -100,00 300,000

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 on the day of retirement)?

If the present value annuity factor at 10% APR for 10 years is 6.1446, what is the equivalent future value annuity factor?

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

What is the present value of the following cash flow at a discount rate of 9%? Year 1 Year 2 Year 3 \ 100,000 \ 150,000 \ 200,000

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

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

Efficient Markets and Behavioral Finance

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Financial Analysis

Financial Planning

Filters