Question 1

The net present value formula for one period is

Accepted Answer

A) NPV = C0 + [C1/(1 + r)]. 
B) NPV = PV required investment. 
C) NPV = C0/C1. 
D) NPV = C1/C0. 
A) NPV = C0 + [C1/(1 + r)]. 
B) NPV = PV required investment. 
C) NPV = C0/C1. 
D) NPV = C1/C0.

Question 2

If the present value annuity factor at 8 percent for 10 years is 6.71, what is the equivalent future value annuity factor?

Accepted Answer

A) 3.108 
B) 14.486 
C) 2.159 
D) 5.384 
A) 3.108 
B) 14.486 
C) 2.159 
D) 5.384

Question 3

Intuitively explain the concept of present value.

Accepted Answer

If you have $100 today, you can invest i

Question 4

You would like to have enough money saved to receive a growing annuity for 20 years, growing at a rate of 5 percent per year, with the first payment of $50,000 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 10 percent.

Accepted Answer

A) $1,000,000.00 
B) $425,678.19 
C) $605,604.20 
D) $827,431.28 
A) $1,000,000.00 
B) $425,678.19 
C) $605,604.20 
D) $827,431.28

Question 5

John House has taken a $250,000 mortgage on his house at an interest rate of 6 percent 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 6

The opportunity cost of capital is higher for safe investments than for risky ones.

Accepted Answer

A) True 
 B)False

Question 7

An initial investment of $500 produces a cash flow of $550 one year from today.Calculate the rate of return on the project.

Accepted Answer

A) 10 percent 
B) 15 percent 
C) 20 percent 
D) 25 percent 
A) 10 percent 
B) 15 percent 
C) 20 percent 
D) 25 percent

Question 8

The one-year discount factor, at an interest rate of 100 percent per year, is

Accepted Answer

A) 1.50. 
B) 0.50. 
C) 0.25. 
D) 1.00. 
A) 1.50. 
B) 0.50. 
C) 0.25. 
D) 1.00.

Question 9

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 percent 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 10

If the present value annuity factor for 10 years at 10 percent interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

Accepted Answer

A) 6.1446 
B) 7.3800 
C) 6.7590 
D) 5.7321 
A) 6.1446 
B) 7.3800 
C) 6.7590 
D) 5.7321

Question 11

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

Accepted Answer

A) $136 
B) $140.49 
C) $240.18 
D) $173.18 
A) $136 
B) $140.49 
C) $240.18 
D) $173.18

Question 12

According to the net present value rule, an investment in a project should be made if the

Accepted Answer

A) net present value is greater than the cost of investment. 
B) net present value is greater than the present value of cash flows. 
C) net present value is positive. 
D) net present value is negative. 
A) net present value is greater than the cost of investment. 
B) net present value is greater than the present value of cash flows. 
C) net present value is positive. 
D) net present value is negative.

Question 13

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent 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 14

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

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 15

An equal-payment home mortgage is an example of an annuity.

Accepted Answer

A) True 
 B)False

Question 16

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

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 17

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 18

What is the difference between simple interest and compound interest?

Accepted Answer

When money is invested at compound inter

Question 19

The present value of a $100 per year perpetuity at 10 percent per year interest rate is $1,000.What would be the present value of this perpetuity if the payments were compounded continuously?

Accepted Answer

A) $1,000.00 
B) $1,049.21 
C) $1,024.40 
D) $986.14 
A) $1,000.00 
B) $1,049.21 
C) $1,024.40 
D) $986.14

Exam 2: How to Calculate Present Values

The net present value formula for one period is

If the present value annuity factor at 8 percent for 10 years is 6.71, what is the equivalent future value annuity factor?

Intuitively explain the concept of present value.

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

The opportunity cost of capital is higher for safe investments than for risky ones.

An initial investment of $500 produces a cash flow of $550 one year from today.Calculate the rate of return on the project.

The one-year discount factor, at an interest rate of 100 percent per year, is

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 percent annual interest rate, what is the value of this trust?

If the present value annuity factor for 10 years at 10 percent interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

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

According to the net present value rule, an investment in a project should be made if the

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

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

An equal-payment home mortgage is an example of an annuity.

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

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

What is the difference between simple interest and compound interest?

The present value of a $100 per year perpetuity at 10 percent per year interest rate is $1,000.What would be the present value of this perpetuity if the payments were compounded continuously?

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

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