Question 1

What is the eight-year present value annuity factor at a discount rate of 11 percent?

Accepted Answer

A) 5.7122 
B) 11.8594 
C) 5.1461 
D) 6.9158 
A) 5.7122 
B) 11.8594 
C) 5.1461 
D) 6.9158

Question 2

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?

Accepted Answer

A) $250,000 
B) $50,000 
C) $200,000 
D) -$50,000 
A) $250,000 
B) $50,000 
C) $200,000 
D) -$50,000

Question 3

The present value of $100 expected two years from today at a discount rate of 6 percent is

Accepted Answer

A) $112.36. 
B) $106.00. 
C) $100.00. 
D) $89.00. 
A) $112.36. 
B) $106.00. 
C) $100.00. 
D) $89.00.

Question 4

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

Accepted Answer

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

Question 5

A perpetuity is defined as a sequence of

Accepted Answer

A) equal cash flows occurring at equal intervals of time for a specific number of periods. 
B) equal cash flows occurring at equal intervals of time forever. 
C) unequal cash flows occurring at equal intervals of time forever. 
D) unequal cash flows occurring at equal intervals of time for a specific number of periods. 
A) equal cash flows occurring at equal intervals of time for a specific number of periods. 
B) equal cash flows occurring at equal intervals of time forever. 
C) unequal cash flows occurring at equal intervals of time forever. 
D) unequal cash flows occurring at equal intervals of time for a specific number of periods.

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 percent.)

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 annuity factor at 12 percent for five years is 3.6048, what is the equivalent future value annuity factor?

Accepted Answer

A) 2.0455 
B) 6.3529 
C) 1.7623 
D) 5.1237 
A) 2.0455 
B) 6.3529 
C) 1.7623 
D) 5.1237

Question 8

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 9

The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by [C1/(r - g)], where r>g.

Accepted Answer

A) True 
 B)False

Question 10

State the net present value rule.

Accepted Answer

Invest in projects with positive net pre

Question 11

The rate of return is also called the

Accepted Answer

A) discount rate only. 
B) discount rate and hurdle rate only. 
C) discount rate, hurdle rate, and opportunity cost of capital. 
D) discount rate and opportunity cost of capital only. 
A) discount rate only. 
B) discount rate and hurdle rate only. 
C) discount rate, hurdle rate, and opportunity cost of capital. 
D) discount rate and opportunity cost of capital only.

Question 12

If the present value of $1 received n years from today at an interest rate of r is 0.621, then what is the future value of $1 invested today at an interest rate of r% for n years?

Accepted Answer

A) $1.000 
B) $1.610 
C) $1.621 
D) Not enough information is given to solve the problem. 
A) $1.000 
B) $1.610 
C) $1.621 
D) Not enough information is given to solve the problem.

Question 13

If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?

Accepted Answer

A) 15 percent 
B) 20 percent 
C) 25 percent 
D) 50 percent 
A) 15 percent 
B) 20 percent 
C) 25 percent 
D) 50 percent

Question 14

One can find the present value of a future cash flow by dividing it by an appropriate discount factor.

Accepted Answer

A) True 
 B)False

Question 15

Define the term perpetuity.

Accepted Answer

A perpetuity is defi

Question 16

John House has taken a 20-year $250,000 mortgage on his house at an interest rate of 6 percent per year.What is the remaining balance (or value) of the mortgage after the payment of the fifth annual installment?

Accepted Answer

A) $128,958.41 
B) $211,689.53 
C) $141,019.50 
D) $248,719.21 
A) $128,958.41 
B) $211,689.53 
C) $141,019.50 
D) $248,719.21

Question 17

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 18

Generally, one should accept investments that offer rates of return in excess of their opportunity costs of capital.

Accepted Answer

A) True 
 B)False

Question 19

Mr.Williams expects to retire in 30 years and would like to accumulate $1 million in his pension fund.If the annual interest rate is 12 percent, how much should Mr.Williams put into his pension fund each month in order to achieve his goal? (Assume that Mr.Williams will deposit the same amount each month into his pension fund, using monthly compounding.)

Accepted Answer

A) $286.13 
B) $771.60 
C) $345.30 
D) $437.13 
A) $286.13 
B) $771.60 
C) $345.30 
D) $437.13

Question 20

The concept of compound interest is best 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) the inverse of simple interest. 
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) the inverse of simple interest.

Exam 2: How to Calculate Present Values

What is the eight-year present value annuity factor at a discount rate of 11 percent?

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?

The present value of $100 expected two years from today at a discount rate of 6 percent is

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

A perpetuity is defined as a sequence of

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 percent.)

If the present value annuity factor at 12 percent for five years is 3.6048, what is the equivalent future value annuity factor?

Present value is defined as

The present value of a growing perpetuity, with cash flow C1 occurring one year from now, is given by [C1/(r - g)], where r>g.

State the net present value rule.

The rate of return is also called the

If the present value of $1 received n years from today at an interest rate of r is 0.621, then what is the future value of $1 invested today at an interest rate of r% for n years?

If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?

One can find the present value of a future cash flow by dividing it by an appropriate discount factor.

Define the term perpetuity.

John House has taken a 20-year $250,000 mortgage on his house at an interest rate of 6 percent per year.What is the remaining balance (or value) of the mortgage after the payment of the fifth annual installment?

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

Generally, one should accept investments that offer rates of return in excess of their opportunity costs of capital.

The concept of compound interest is best described as

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

The present value of a growing perpetuity, with cash flow C₁ occurring one year from now, is given by [C₁/(r - g)], where r>g.