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

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

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 6

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value?

Accepted Answer

A)  Future value of a single payment 
B)  Future value of an annuity 
C)  Present value of an annuity 
D)  None of the above 
A)  Future value of a single payment 
B)  Future value of an annuity 
C)  Present value of an annuity 
D)  None of the above

Question 7

Briefly explain the term "discount rate."

Accepted Answer

Discount rate is the rate of return used

Question 8

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 9

Intuitively explain the concept of the present value.

Accepted Answer

If you have $100 today, you can invest i

Question 10

The concept of compound interest is most appropriately described as:

Accepted Answer

A)  Interest earned on an investment 
B)  The total amount of interest earned over the life of an investment 
C)  Interest earned on interest 
D)  None of the above 
A)  Interest earned on an investment 
B)  The total amount of interest earned over the life of an investment 
C)  Interest earned on interest 
D)  None of the above

Question 11

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

Question 12

The one-year discount factor at an interest rate of 100% per year is:

Accepted Answer

A)  1.5 
B)  0.5 
C)  0.25 
D)  None of the above 
A)  1.5 
B)  0.5 
C)  0.25 
D)  None of the above

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

At an interest rate of 10%, which of the following cash flows should you prefer?
$\begin{array}{llcc}
& \text { Year 1 } & \text { Year 2 } & \text { Year 3 }
\end{array}$

A. $\begin{array}{llcc}
& 500 &\quad\quad 300 &\quad 100
\end{array}$

B.$\begin{array}{llcc}
& 100 &\quad\quad 300 & \quad500 
\end{array}$

C.$\begin{array}{llcc}
& 300 &\quad\quad 300 &\quad 300
\end{array}$

D.$\text { Any of the above as they all add up to } \$ 900$

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

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

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

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.

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)?

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value?

Briefly explain the term "discount rate."

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

Intuitively explain the concept of the present value.

The concept of compound interest is most appropriately described as:

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

The one-year discount factor at an interest rate of 100% per year is:

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

At an interest rate of 10%, which of the following cash flows should you prefer? Year 1 Year 2 Year 3 A. 500 300 100 B. 100 300 500 C. 300 300 300 D. $\text { Any of the above as they all add up to } \$ 900$

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

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

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

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.

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)?

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value?

Briefly explain the term "discount rate."

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

Intuitively explain the concept of the present value.

The concept of compound interest is most appropriately described as:

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

The one-year discount factor at an interest rate of 100% per year is:

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

At an interest rate of 10%, which of the following cash flows should you prefer? Year 1 Year 2 Year 3 A. 500 300 100 B. 100 300 500 C. 300 300 300 D. Any of the above as they all add up to $900\text { Any of the above as they all add up to } \$ 900 Any of the above as they all add up to $900

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

At an interest rate of 10%, which of the following cash flows should you prefer? Year 1 Year 2 Year 3 A. 500 300 100 B. 100 300 500 C. 300 300 300 D. $\text { Any of the above as they all add up to } \$ 900$