Question 1

In which type of loan does the borrower initially receive the present value of the future lump sum loan repayment amount?

Accepted Answer

A) Pure discount loan 
B) Both pure discount and interest-only loans 
C) Amortized loan 
D) Both interest-only and amortized loans 
E) Interest-only loan 
A) Pure discount loan 
B) Both pure discount and interest-only loans 
C) Amortized loan 
D) Both interest-only and amortized loans 
E) Interest-only loan A

Question 2

Theo just won a prize that will pay him $10,000 a year for 10 years,starting at the end of Year 10.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

Accepted Answer

A) $37,982.98 
B) $35,704.33 
C) $38,203.63 
D) $36,191.91 
E) $35,928.70 
A) $37,982.98 
B) $35,704.33 
C) $38,203.63 
D) $36,191.91 
E) $35,928.70 C

Question 3

Your credit card company quotes you a rate of 17.9 percent,compounded daily.What actual rate of interest you are paying? Assume a 365-day year.

Accepted Answer

A) 18.97% 
B) 19.81% 
C) 18.48% 
D) 19.60% 
E) 18.79% 
A) 18.97% 
B) 19.81% 
C) 18.48% 
D) 19.60% 
E) 18.79% D

Question 4

Which one of the following will increase the present value of a finite stream of even cash flows? Assume a positive rate of return.

Accepted Answer

A) Moving every cash flow one time period further into the future 
B) Decreasing the amount of each cash flow 
C) Increasing the Time 2 cash flow by $100 and lowering the Time 3 cash flow by $100 
D) Moving the Time 1 cash inflow to Time 2 
E) Increasing the discount rate 
A) Moving every cash flow one time period further into the future 
B) Decreasing the amount of each cash flow 
C) Increasing the Time 2 cash flow by $100 and lowering the Time 3 cash flow by $100 
D) Moving the Time 1 cash inflow to Time 2 
E) Increasing the discount rate

Question 5

An annuity

Accepted Answer

A) has greater value than a comparable perpetuity. 
B) is either an equal or an unequal stream of payments that occur in equal time periods for a finite period of time. 
C) is a stream of payments that fluctuate with current market interest rates. 
D) is a stream of equal payments that occur in equal periods of time for a finite period. 
E) has a longer life span than a perpetuity. 
A) has greater value than a comparable perpetuity. 
B) is either an equal or an unequal stream of payments that occur in equal time periods for a finite period of time. 
C) is a stream of payments that fluctuate with current market interest rates. 
D) is a stream of equal payments that occur in equal periods of time for a finite period. 
E) has a longer life span than a perpetuity.

Question 6

Today,the Corner Store borrowed $11,680 at 6.3 percent,compounded monthly.The loan payment is $195.23 a month.How many loan payments must the firm make before the loan is paid in full?

Accepted Answer

A) 72 years 
B) 60 years 
C) 48 years 
D) 72 months 
E) 60 months 
A) 72 years 
B) 60 years 
C) 48 years 
D) 72 months 
E) 60 months

Question 7

Angela expects to save $500 a year and earn an average annual return of 5.2 percent.How much will her savings be worth 35 years from now?

Accepted Answer

A) $51,317.82 
B) $57,702.57 
C) $47,076.06 
D) $44,868.92 
E) $56,063.66 
A) $51,317.82 
B) $57,702.57 
C) $47,076.06 
D) $44,868.92 
E) $56,063.66

Question 8

The interest rate charged per period multiplied by the number of periods per year is called the

Accepted Answer

A) effective annual rate. 
B) compound interest rate. 
C) periodic interest rate. 
D) annual percentage rate. 
E) daily interest rate. 
A) effective annual rate. 
B) compound interest rate. 
C) periodic interest rate. 
D) annual percentage rate. 
E) daily interest rate.

Question 9

Tracie invested $60,000 in exchange for payments of $2,500 a year forever.What rate of return is she earning?

Accepted Answer

A) 4.25% 
B) 4.17% 
C) 4.43% 
D) 4.50% 
E) 4.67% 
A) 4.25% 
B) 4.17% 
C) 4.43% 
D) 4.50% 
E) 4.67%

Question 10

What is the effective annual rate on a loan with an APR of 10.6 percent if interest is compounded daily? Assume a 365-day year.

Accepted Answer

A) 10.08% 
B) 11.02% 
C) 10.72% 
D) 10.16% 
E) 11.18% 
A) 10.08% 
B) 11.02% 
C) 10.72% 
D) 10.16% 
E) 11.18%

Question 11

TL Enterprises (TLE)is considering purchasing DMM.DMM has expected cash flows of $42,800,$56,700,and $37,100 for the next 3 years,respectively.After that,the products DMM produces will be obsolete and thus DMM will be worthless.If TLE requires a return of 18 percent,what amount should they offer as a purchase price?

Accepted Answer

A) $87,141.41 
B) $102,247.79 
C) $85,868.09 
D) $91,216.57 
E) $99,572.45 
A) $87,141.41 
B) $102,247.79 
C) $85,868.09 
D) $91,216.57 
E) $99,572.45

Question 12

Which one of these statements related to the time value of money is correct? Assume a positive rate of interest.

Accepted Answer

A) A dollar increases in value the further into the future it is received. 
B) The future value of an invested dollar is inversely related to the rate of interest. 
C) The present value of a dollar to be received in 1 year is directly related to the interest rate. 
D) A dollar received today is more valuable than a dollar received next month. 
E) A dollar invested today will increase in value in a linear manner if interest earned is reinvested. 
A) A dollar increases in value the further into the future it is received. 
B) The future value of an invested dollar is inversely related to the rate of interest. 
C) The present value of a dollar to be received in 1 year is directly related to the interest rate. 
D) A dollar received today is more valuable than a dollar received next month. 
E) A dollar invested today will increase in value in a linear manner if interest earned is reinvested.

Question 13

You are the recipient of an inheritance that will pay you and your heirs $13,000 a year forever.What is this inheritance worth today at a discount rate of 5.85 percent?

Accepted Answer

A) $222,222.22 
B) $239,250.00 
C) $211,953.94 
D) $241,141.41 
E) $236,004.98 
A) $222,222.22 
B) $239,250.00 
C) $211,953.94 
D) $241,141.41 
E) $236,004.98

Question 14

You desperately need some money and only your "miserly" friend has any.He agrees to loan you the money you need if you make payments of $25 a month for the next 6 months.In keeping with his reputation,he requires that the first payment be paid today.He also charges you 1.65 percent interest per month.How much money are you borrowing?

Accepted Answer

A) $144.04 
B) $140.98 
C) $113.94 
D) $141.70 
E) $114.96 
A) $144.04 
B) $140.98 
C) $113.94 
D) $141.70 
E) $114.96

Question 15

An investment will pay $5,500 every 2 years for the next 40 years.The annual rate of interest is 12 percent.What is the value of this investment at the end of Year 40?

Accepted Answer

A) $1,630,590.34 
B) $1,096,222.20 
C) $1,206,504.11 
D) $1,353,997.81 
E) $1,990,095.67 
A) $1,630,590.34 
B) $1,096,222.20 
C) $1,206,504.11 
D) $1,353,997.81 
E) $1,990,095.67

Question 16

You want to make a one-time deposit today that will increase in value to $100 at the end of this year.Which rate of interest will allow you to deposit the least amount today to reach this goal?

Accepted Answer

A) 3.8% 
B) 2.6% 
C) 2.9% 
D) 3.6% 
E) 3.4% 
A) 3.8% 
B) 2.6% 
C) 2.9% 
D) 3.6% 
E) 3.4%

Question 17

A bank is loaning $5,000 for 3 years at an interest rate of 7.5 percent.How much additional interest can the bank earn if it compounds interest continuously rather than annually?

Accepted Answer

A) $61.65 
B) $56.67 
C) $51.78 
D) $50.13 
E) $48.89 
A) $61.65 
B) $56.67 
C) $51.78 
D) $50.13 
E) $48.89

Question 18

Which statement applies to an amortized loan that requires fixed principal payments?

Accepted Answer

A) The loan payments will be either an ordinary annuity or an annuity due. 
B) The final loan payment will equal the required principal payment amount. 
C) The interest is paid only at loan maturity. 
D) The loan payments are an annuity due. 
E) The loan payments will decrease over time. 
A) The loan payments will be either an ordinary annuity or an annuity due. 
B) The final loan payment will equal the required principal payment amount. 
C) The interest is paid only at loan maturity. 
D) The loan payments are an annuity due. 
E) The loan payments will decrease over time.

Question 19

An investment will pay $1,200 per quarter for 15 years.You require a return of 12 percent,compounded quarterly,for this type of investment.How much is this investment worth to you today?

Accepted Answer

A) $33,210.68 
B) $28,409.08 
C) $31,152.59 
D) $28,395.10 
E) $30,806.30 
A) $33,210.68 
B) $28,409.08 
C) $31,152.59 
D) $28,395.10 
E) $30,806.30

Question 20

Cast Out Co.invested $37,900 in a project.At the end of three years,the company sold the project for $62,500.What annual rate of return did the firm earn on this project?

Accepted Answer

A) 16.91% 
B) 19.20% 
C) 18.14% 
D) 18.67% 
E) 17.47% 
A) 16.91% 
B) 19.20% 
C) 18.14% 
D) 18.67% 
E) 17.47%

In which type of loan does the borrower initially receive the present value of the future lump sum loan repayment amount?

Theo just won a prize that will pay him $10,000 a year for 10 years,starting at the end of Year 10.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

Your credit card company quotes you a rate of 17.9 percent,compounded daily.What actual rate of interest you are paying? Assume a 365-day year.

Which one of the following will increase the present value of a finite stream of even cash flows? Assume a positive rate of return.

An annuity

Today,the Corner Store borrowed $11,680 at 6.3 percent,compounded monthly.The loan payment is $195.23 a month.How many loan payments must the firm make before the loan is paid in full?

Angela expects to save $500 a year and earn an average annual return of 5.2 percent.How much will her savings be worth 35 years from now?

The interest rate charged per period multiplied by the number of periods per year is called the

Tracie invested $60,000 in exchange for payments of $2,500 a year forever.What rate of return is she earning?

What is the effective annual rate on a loan with an APR of 10.6 percent if interest is compounded daily? Assume a 365-day year.

Which one of these statements related to the time value of money is correct? Assume a positive rate of interest.

You are the recipient of an inheritance that will pay you and your heirs $13,000 a year forever.What is this inheritance worth today at a discount rate of 5.85 percent?

An investment will pay $5,500 every 2 years for the next 40 years.The annual rate of interest is 12 percent.What is the value of this investment at the end of Year 40?

You want to make a one-time deposit today that will increase in value to $100 at the end of this year.Which rate of interest will allow you to deposit the least amount today to reach this goal?

A bank is loaning $5,000 for 3 years at an interest rate of 7.5 percent.How much additional interest can the bank earn if it compounds interest continuously rather than annually?

Which statement applies to an amortized loan that requires fixed principal payments?

An investment will pay $1,200 per quarter for 15 years.You require a return of 12 percent,compounded quarterly,for this type of investment.How much is this investment worth to you today?

Cast Out Co.invested $37,900 in a project.At the end of three years,the company sold the project for $62,500.What annual rate of return did the firm earn on this project?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

Exam 4: Discounted Cash Flow Valuation

In which type of loan does the borrower initially receive the present value of the future lump sum loan repayment amount?

Theo just won a prize that will pay him $10,000 a year for 10 years,starting at the end of Year 10.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

Your credit card company quotes you a rate of 17.9 percent,compounded daily.What actual rate of interest you are paying? Assume a 365-day year.

Which one of the following will increase the present value of a finite stream of even cash flows? Assume a positive rate of return.

An annuity

Today,the Corner Store borrowed $11,680 at 6.3 percent,compounded monthly.The loan payment is $195.23 a month.How many loan payments must the firm make before the loan is paid in full?

Angela expects to save $500 a year and earn an average annual return of 5.2 percent.How much will her savings be worth 35 years from now?

The interest rate charged per period multiplied by the number of periods per year is called the

Tracie invested $60,000 in exchange for payments of $2,500 a year forever.What rate of return is she earning?

What is the effective annual rate on a loan with an APR of 10.6 percent if interest is compounded daily? Assume a 365-day year.

Which one of these statements related to the time value of money is correct? Assume a positive rate of interest.

You are the recipient of an inheritance that will pay you and your heirs $13,000 a year forever.What is this inheritance worth today at a discount rate of 5.85 percent?

An investment will pay $5,500 every 2 years for the next 40 years.The annual rate of interest is 12 percent.What is the value of this investment at the end of Year 40?

You want to make a one-time deposit today that will increase in value to $100 at the end of this year.Which rate of interest will allow you to deposit the least amount today to reach this goal?

A bank is loaning $5,000 for 3 years at an interest rate of 7.5 percent.How much additional interest can the bank earn if it compounds interest continuously rather than annually?

Which statement applies to an amortized loan that requires fixed principal payments?

An investment will pay $1,200 per quarter for 15 years.You require a return of 12 percent,compounded quarterly,for this type of investment.How much is this investment worth to you today?

Cast Out Co.invested $37,900 in a project.At the end of three years,the company sold the project for $62,500.What annual rate of return did the firm earn on this project?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Short-Term Finance and Planning

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters