Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Briefly explain the term discount rate.

Accepted Answer

The discount rate is the rate of return

Question 3

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12%?

Accepted Answer

A) $6,352.85 
B) $3,604.78 
C) $567.43 
D) $2,743.28 
A) $6,352.85 
B) $3,604.78 
C) $567.43 
D) $2,743.28

Question 4

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

Accepted Answer

A) $1.19 
B) $0.84 
C) $0.89 
D) $0.92 
A) $1.19 
B) $0.84 
C) $0.89 
D) $0.92

Question 5

If the five-year present value annuity factor is 3.60478 and the 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) $1.2132 
A) $0.63552 
B) $1.76233 
C) $0.56743 
D) $1.2132

Question 6

You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start on the day of your retirement.The annual interest rate is 8%.)

Accepted Answer

A) $1,000,000 
B) $675,000 
C) $625,000 
D) $500,000 
A) $1,000,000 
B) $675,000 
C) $625,000 
D) $500,000

Question 7

If the present value of $250 expected one year from today is $200,what is the one-year discount rate?

Accepted Answer

A) 10% 
B) 20% 
C) 25% 
D) 30% 
A) 10% 
B) 20% 
C) 25% 
D) 30%

Question 8

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

Accepted Answer

A) $136.00 
B) $140.49 
C) $240.18 
D) $187.13 
A) $136.00 
B) $140.49 
C) $240.18 
D) $187.13

Question 9

The opportunity cost of capital for a risky project is:

Accepted Answer

A) the expected rate of return on a government security having the same maturity as the project. 
B) the expected rate of return on a well-diversified portfolio of common stocks. 
C) the expected rate of return on a security of similar risk as the project. 
D) The expected rate of return on a typical bond portfolio. 
A) the expected rate of return on a government security having the same maturity as the project. 
B) the expected rate of return on a well-diversified portfolio of common stocks. 
C) the expected rate of return on a security of similar risk as the project. 
D) The expected rate of return on a typical bond portfolio.

Question 10

If the present value 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) 5.3127 
A) 3.5684 
B) 4.2397 
C) 3.8896 
D) 5.3127

Question 11

John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year.If the mortgage calls for 20 equal,annual payments,what is the amount of each payment?

Accepted Answer

A) $21,796.14 
B) $10,500.00 
C) $16,882.43 
D) $24,327.18 
A) $21,796.14 
B) $10,500.00 
C) $16,882.43 
D) $24,327.18

Question 12

Mr.Hopper expects to retire in 25 years,and he wishes to 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 his retirement fund each year in order to achieve this goal? (Assume that he makes payments at the end of each year.)

Accepted Answer

A) $4,559.44 
B) $2,500 
C) $7,626.05 
A) $4,559.44 
B) $2,500 
C) $7,626.05

Question 13

What is the present value of a six-year,$5,000 per year annuity at a discount rate of 10%?

Accepted Answer

A) $21,776.30 
B) $3,371.91 
C) $16,760.78 
D) $18,327.82 
A) $21,776.30 
B) $3,371.91 
C) $16,760.78 
D) $18,327.82

Question 14

Define the term perpetuity.

Accepted Answer

A perpetuity is defi

Question 15

If the present value of cash flow X is $240,and the present value of cash flow Y is $160,then the present value of the combined cash flows is:

Accepted Answer

A) $240. 
B) $160. 
C) $80. 
D) $400. 
A) $240. 
B) $160. 
C) $80. 
D) $400.

Question 16

Present value is defined as:

Accepted Answer

A) future cash flows discounted to the present by an appropriate discount rate. 
B) inverse of future cash flows. 
C) present cash flows compounded into the future. 
D) future cash flows multiplied by the factor (1 + r)t. 
A) future cash flows discounted to the present by an appropriate discount rate. 
B) inverse of future cash flows. 
C) present cash flows compounded into the future. 
D) future cash flows multiplied by the factor (1 + r)t.

Question 17

You would like to have enough money saved to receive $80,000 per year in perpetuity after retirement for you and your heirs.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start one year from the date of your retirement.The annual interest rate is 8%.)

Accepted Answer

A) $7,500,000 
B) $750,000 
C) $1,000,000 
D) $800,000 
A) $7,500,000 
B) $750,000 
C) $1,000,000 
D) $800,000

Question 18

The rate of return on any perpetuity is equal to its cash flow multiplied by its price.

Accepted Answer

A) True 
 B)False

Question 19

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 a 10% annual interest rate,what is the value of this trust?

Accepted Answer

A) $683,013 
B) $751,315 
C) $1,000,000 
D) $1,100,000 
A) $683,013 
B) $751,315 
C) $1,000,000 
D) $1,100,000

Question 20

What is the present value of $10,000 per year in perpetuity at an interest rate of 10%?

Accepted Answer

A) $10,000 
B) $100,000 
C) $200,000 
D) $1,000 
A) $10,000 
B) $100,000 
C) $200,000 
D) $1,000

Exam 2: How to Calculate Present Values

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

Briefly explain the term discount rate.

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12%?

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

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

You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement.How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start on the day of your retirement.The annual interest rate is 8%.)

If the present value of $250 expected one year from today is $200,what is the one-year discount rate?

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

The opportunity cost of capital for a risky project is:

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

John House has taken a $250,000 mortgage on his house at an interest rate of 6% per year.If the mortgage calls for 20 equal,annual payments,what is the amount of each payment?

What is the present value of a six-year,$5,000 per year annuity at a discount rate of 10%?

Define the term perpetuity.

If the present value of cash flow X is $240,and the present value of cash flow Y is $160,then the present value of the combined cash flows is:

Present value is defined as:

The rate of return on any perpetuity is equal to its cash flow multiplied by its price.

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 a 10% annual interest rate,what is the value of this trust?

What is the present value of $10,000 per year in perpetuity at an interest rate of 10%?

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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