Question 1

Which of the following is generally considered an example of a perpetuity?

Accepted Answer

A) Interest payments on a 10-year bond 
B) Interest payments on a 30-year bond 
C) Interest payments on a consol 
D) Interest payments on government bonds 
A) Interest payments on a 10-year bond 
B) Interest payments on a 30-year bond 
C) Interest payments on a consol 
D) Interest payments on government bonds C

Question 2

Mr.Hopper expects to retire in 30 years, and he wishes to accumulate $1,000,000 in his retirement fund by that time.If the interest rate is 12 percent per year, how much should Mr.Hopper put into his retirement fund at the end of each year in order to achieve this goal?

Accepted Answer

A) $4,143.66 
B) $8,287.32 
C) $4,000.00 
D) $12,483.17 
A) $4,143.66 
B) $8,287.32 
C) $4,000.00 
D) $12,483.17 A

Question 3

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

Accepted Answer

A) 10 percent 
B) 20 percent 
C) 30 percent 
D) 40 percent 
A) 10 percent 
B) 20 percent 
C) 30 percent 
D) 40 percent B

Question 4

An investment at 12 percent APR compounded monthly is equal to an effective annual rate of

Accepted Answer

A) 12.68 percent. 
B) 12.36 percent. 
C) 12.00 percent. 
D) 11.87 percent. 
A) 12.68 percent. 
B) 12.36 percent. 
C) 12.00 percent. 
D) 11.87 percent.

Question 5

What is the net present value of the following sequence of annual cash flows at a discount rate of 16 percent APR? $\frac { t = 1 } { 100,000 } \quad \frac { t = 2 } { 300,000 }$

Accepted Answer

A) $136,741.97 
B) $122,948.87 
C) $158,620.69 
D) $139,418.23 
A) $136,741.97 
B) $122,948.87 
C) $158,620.69 
D) $139,418.23

Question 6

The one-year discount factor, at a discount rate of 25 percent per year, is

Accepted Answer

A) 1.25. 
B) 1.0. 
C) 0.8. 
D) 0.75. 
A) 1.25. 
B) 1.0. 
C) 0.8. 
D) 0.75.

Question 7

Which of the following statements regarding the net present value rule and the rate of return rule is false?

Accepted Answer

A) Accept a project if NPV > cost of investment. 
B) Accept a project if NPV is positive. 
C) Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market. 
D) Reject a project if NPV is negative. 
A) Accept a project if NPV > cost of investment. 
B) Accept a project if NPV is positive. 
C) Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market. 
D) Reject a project if NPV is negative.

Question 8

Briefly explain the concept of risk.

Accepted Answer

If the future cash flows from an investm

Question 9

If the present value of $1 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1 invested today at an interest rate of r percent for n years?

Accepted Answer

A) $1.3855 
B) $2.594 
C) $1.701 
D) Not enough information is given to solve the problem. 
A) $1.3855 
B) $2.594 
C) $1.701 
D) Not enough information is given to solve the problem.

Question 10

Ms.Colonial has just taken out a $150,000 mortgage at an interest rate of 6 percent per year.If the mortgage calls for equal monthly payments for 20 years, what is the amount of each payment? (Assume monthly compounding or discounting.)

Accepted Answer

A) $1,254.70 
B) $1,625.00 
C) $1,263.06 
D) $1,074.65 
A) $1,254.70 
B) $1,625.00 
C) $1,263.06 
D) $1,074.65

Question 11

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 your retirement account to receive this income if the annual interest rate is 9 percent per year? (Assume that the payments start one year after your retirement.)

Accepted Answer

A) $736,693.47 
B) $83,431.17 
C) $1,875,000 
D) $1,213,487.12 
A) $736,693.47 
B) $83,431.17 
C) $1,875,000 
D) $1,213,487.12

Question 12

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 13

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

Accepted Answer

A) 3.1080 
B) 15.9375 
C) 2.5937 
D) 8.4132 
A) 3.1080 
B) 15.9375 
C) 2.5937 
D) 8.4132

Question 14

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 15

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

Accepted Answer

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

Question 16

What is the present value of the following cash flows at a discount rate of 9 percent? $\begin{array} { c c c } 
\text { Year 1 } & \text { Year } 2 & \text { Year 3 } \
\$ 100.000 & \$ 150.000 & \$ 200,000
\end{array}$

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 17

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

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 18

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 of 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 19

The managers of a firm can maximize stockholder wealth by

Accepted Answer

A) taking all projects with positive NPVs. 
B) taking all projects with NPVs greater than the cost of investment. 
C) taking all projects with NPVs greater than the present value of cash flows. 
D) taking only the highest NPV project each year. 
A) taking all projects with positive NPVs. 
B) taking all projects with NPVs greater than the cost of investment. 
C) taking all projects with NPVs greater than the present value of cash flows. 
D) taking only the highest NPV project each year.

Question 20

If the future value of $1 invested today at an interest rate of r percent for n years is 9.6463, what is the present value of $1 to be received in n years at r percent interest rate?

Accepted Answer

A) $9.6463 
B) $1.0000 
C) $0.1037 
D) $0.4132 
A) $9.6463 
B) $1.0000 
C) $0.1037 
D) $0.4132

Exam 2: How to Calculate Present Values

Which of the following is generally considered an example of a perpetuity?

Mr.Hopper expects to retire in 30 years, and he wishes to accumulate $1,000,000 in his retirement fund by that time.If the interest rate is 12 percent per year, how much should Mr.Hopper put into his retirement fund at the end of each year in order to achieve this goal?

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

An investment at 12 percent APR compounded monthly is equal to an effective annual rate of

What is the net present value of the following sequence of annual cash flows at a discount rate of 16 percent APR? t=1100,000t=2300,000\frac { t = 1 } { 100,000 } \quad \frac { t = 2 } { 300,000 }100,000t=1​300,000t=2​

The one-year discount factor, at a discount rate of 25 percent per year, is

Which of the following statements regarding the net present value rule and the rate of return rule is false?

Briefly explain the concept of risk.

If the present value of $1 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1 invested today at an interest rate of r percent for n years?

Ms.Colonial has just taken out a $150,000 mortgage at an interest rate of 6 percent per year.If the mortgage calls for equal monthly payments for 20 years, what is the amount of each payment? (Assume monthly compounding or discounting.)

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 your retirement account to receive this income if the annual interest rate is 9 percent per year? (Assume that the payments start one year after your retirement.)

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

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

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.

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

What is the present value of the following cash flows at a discount rate of 9 percent? Year 1 Year 2 Year 3 \ 100.000 \ 150.000 \ 200,000

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

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 of the $1 received at the end of five years?

The managers of a firm can maximize stockholder wealth by

If the future value of $1 invested today at an interest rate of r percent for n years is 9.6463, what is the present value of $1 to be received in n years at r percent interest rate?

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 Risk

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters

What is the net present value of the following sequence of annual cash flows at a discount rate of 16 percent APR? $\frac { t = 1 } { 100,000 } \quad \frac { t = 2 } { 300,000 }$