Question 1

An investment at 10% compounded continuously has an equivalent annual rate of:

Accepted Answer

A) 10.250%. 
B) 10.517%. 
C) 10.381%. 
D) none of the options. 
A) 10.250%. 
B) 10.517%. 
C) 10.381%. 
D) none of the options.

Question 2

Briefly explain the concept of risk.

Accepted Answer

If the future cash flows from an investm

Question 3

For $10,000,you can purchase a five-year annuity that will pay $2,504.57 per year for five years.The payments occur at the end of each year.Calculate the effective annual interest rate implied by this arrangement.

Accepted Answer

A) 8% 
B) 9% 
C) 10% 
A) 8% 
B) 9% 
C) 10%

Question 4

An annuity is an asset that pays a fixed amount each period for a specified number of periods.

Accepted Answer

A) True 
 B)False

Question 5

One can find a project's net present value by subtracting the present value of its required investment from the present value of its future cash flows.

Accepted Answer

A) True 
 B)False

Question 6

If the one-year discount factor is 0.90,what is the present value of $120 expected one year from today?

Accepted Answer

A) $100 
B) $96 
C) $108 
D) $133 
A) $100 
B) $96 
C) $108 
D) $133

Question 7

You would like to have enough money saved to receive a growing annuity for 25 years,growing at a rate of 4% per year,with the first payment of $60,000 occurring exactly one year after retirement.How much would you need to save in your retirement fund to achieve this goal? (The interest rate is 12%.)

Accepted Answer

A) $1,500,000.00 
B) $632,390 
C) $452,165 
D) $1,043,287 
A) $1,500,000.00 
B) $632,390 
C) $452,165 
D) $1,043,287

Question 8

What is the net present value of the following cash flow sequence at a discount rate of 11%?

Accepted Answer

A) $69,108.03 
B) $231,432.51 
C) $80,000.00 
D) $88,000.00 
A) $69,108.03 
B) $231,432.51 
C) $80,000.00 
D) $88,000.00

Question 9

You would like to have enough money saved after your retirement such that you and your heirs can receive $100,000 per year in perpetuity.How much would you need to have saved at the time of your retirement in order to achieve this goal? (Assume that the perpetuity payments start one year after the date of your retirement.The annual interest rate is 12.5%.)

Accepted Answer

A) $1,000,000 
B) $10,000,000 
C) $800,000 
D) $1,125,000 
A) $1,000,000 
B) $10,000,000 
C) $800,000 
D) $1,125,000

Question 10

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 11

The value of a five-year annuity is equal to the sum of two perpetuities.One makes its first payment in year 1,and the other makes its first payment in year 6.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements regarding the NPV rule and the rate of return rule is false?

Accepted Answer

A) Accept a project if its NPV > 0. 
B) Reject a project if the NPV  0. 
D) Accept a project if its rate of return > opportunity cost of capital. 
A) Accept a project if its NPV > 0. 
B) Reject a project if the NPV  0. 
D) Accept a project if its rate of return > opportunity cost of capital.

Question 13

You just inherited a trust that will pay you $100,000 per year in perpetuity.However,the first payment will not occur for exactly four more years.Assuming an 8% annual interest rate,what is the value of this trust?

Accepted Answer

A) $918,787 
B) $992,290 
C) $1,000,000 
D) $1,250,000 
A) $918,787 
B) $992,290 
C) $1,000,000 
D) $1,250,000

Question 14

What is the present value of the following cash flows 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) $450,000.00 
C) $405,950.68 
D) $412,844.04 
A) $372,431.81 
B) $450,000.00 
C) $405,950.68 
D) $412,844.04

Question 15

The rate of return is also called the: 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) I and III only. 
A) I only. 
B) I and II only. 
C) I,II,and III. 
D) I and III only.

Question 16

An investment having a 10.47% effective annual rate (EAR)has what APR? (Assume monthly compounding.)

Accepted Answer

A) 10.99% 
B) 9.57% 
C) 10.00% 
D) 8.87% 
A) 10.99% 
B) 9.57% 
C) 10.00% 
D) 8.87%

Question 17

The present value of $100,000 expected at the end of one year,at a discount rate of 25% per year,is:

Accepted Answer

A) $80,000. 
B) $125,000. 
C) $100,000. 
D) $75,000. 
A) $80,000. 
B) $125,000. 
C) $100,000. 
D) $75,000.

Question 18

The present value of a $100 per year perpetuity at 10% per year interest rate is $1000.What would be the present value of this perpetuity if the payments were compounded continuously?

Accepted Answer

A) $1000.00 
B) $1049.21 
C) $1024.40 
D) $986.14 
A) $1000.00 
B) $1049.21 
C) $1024.40 
D) $986.14

Question 19

What is the six-year present value annuity factor at an interest rate of 9%?

Accepted Answer

A) 7.5233 
B) 4.4859 
C) 1.6771 
D) 3.1432 
A) 7.5233 
B) 4.4859 
C) 1.6771 
D) 3.1432

Question 20

The present value formula for a cash flow expected one period from now is:

Accepted Answer

A) PV = C1 × (1 + r). 
B) PV = C1/(1 + r). 
C) PV = C1/r. 
D) PV = (1 + r)/C1. 
A) PV = C1 × (1 + r). 
B) PV = C1/(1 + r). 
C) PV = C1/r. 
D) PV = (1 + r)/C1.

Exam 2: How to Calculate Present Values

An investment at 10% compounded continuously has an equivalent annual rate of:

Briefly explain the concept of risk.

For $10,000,you can purchase a five-year annuity that will pay $2,504.57 per year for five years.The payments occur at the end of each year.Calculate the effective annual interest rate implied by this arrangement.

An annuity is an asset that pays a fixed amount each period for a specified number of periods.

One can find a project's net present value by subtracting the present value of its required investment from the present value of its future cash flows.

If the one-year discount factor is 0.90,what is the present value of $120 expected one year from today?

What is the net present value of the following cash flow sequence at a discount rate of 11%?

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.

The value of a five-year annuity is equal to the sum of two perpetuities.One makes its first payment in year 1,and the other makes its first payment in year 6.

Which of the following statements regarding the NPV rule and the rate of return rule is false?

You just inherited a trust that will pay you $100,000 per year in perpetuity.However,the first payment will not occur for exactly four more years.Assuming an 8% annual interest rate,what is the value of this trust?

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

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

An investment having a 10.47% effective annual rate (EAR)has what APR? (Assume monthly compounding.)

The present value of $100,000 expected at the end of one year,at a discount rate of 25% per year,is:

The present value of a $100 per year perpetuity at 10% per year interest rate is $1000.What would be the present value of this perpetuity if the payments were compounded continuously?

What is the six-year present value annuity factor at an interest rate of 9%?

The present value formula for a cash flow expected one period from now is:

Introduction to Corporate Finance

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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