Exam 3: Time Value of Money: An Introduction

You own 1000 shares of Newstar Financial stock,currently trading for $57 per share.You are offered a deal where you can exchange these stocks for 900 shares of Amback Financial Group stock,currently trading at $63 per share.What is the value of this trade,if you choose to make it?

Which of the following statements regarding arbitrage and security prices is INCORRECT?

A tenant wants to lease a building for $48,000 per year.She signs a five-year rental agreement that states that she will pay $24,000 every six months for the next five years.Which of the following is the timeline for her rental payments,assuming she makes the first payment immediately?

Sara wants to have $500,000 in her savings account when she retires.How much must she put in the account now,if the account pays a fixed interest rate of 8%,to ensure that she has $500,000 in 20 years' time?

Consider the following timeline: If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

If an arbitrage opportunity exists,an investor can act quickly in the hope of making a risk-free profit.

What is the present value (PV)of $80,000 received ten years from now,assuming the interest rate is 5% per year?

A metal fabrication company is pricing raw supplies of aluminium.The following are the costs to the company to receive one tonne of aluminium from various sources.Which source offers the best price for aluminium per tonne?

If an analyst mistakenly adds cash flows occurring at different points in time,what is the implied assumption in the process?

Steve is offered an investment where for every $1.00 invested today,he will receive $1.10 at the end of each of the next five years.Steve concludes that in five years time he will have $1.10 for every $1.00 invested and that this investment will increase his personal value.What is Steve's major error in reasoning when making this decision?

Whenever a good trades in a competitive market,the ________ determines the value of the good.

You have a used CD store.At an estate sale,you can purchase 260 compact discs for $400.You believe you could sell the CDs for an average of $2.50 each.What is the net benefit of buying the CDs at the estate sale and selling them in your store?

"If equivalent investment opportunities trade simultaneously in different competitive markets,then they must trade for the same price in both markets." What do we call the above statement?

The State Bank offers an interest rate of 5.5% on savings and 6% on loans,while the Colonial Bank offers 6.5% on savings and 7% on loans.Which of the following is the LEAST likely outcome of such a situation?

Advanced Micro Devices (NYSE: AMD)is currently trading at $20.75 on the NYSE.Advanced Micro Devices is also listed on NASDAQ and assume it is currently trading on NASDAQ at $20.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 1000 shares?

If the interest rate is 5%,the one-year discount factor is equal to:

Use the information for the question(s)below. As an oil refiner,you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil.Because of its lower sulfur content,you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude. -Another oil refiner is offering to trade you 10,150 Bbls of Alaska North Slope (ANS)crude oil for 10,000 Bbls of West Texas Intermediate (WTI)crude oil.Assuming you currently have 10,000 Bbls of WTI crude,the added benefit (cost)to you if you take the trade is closest to:

A backhoe can dig 150 feet of trench per hour and costs $500 per hour to hire and operate.A ditch digger can dig six feet of trench per hour.Based on this information,what is the most a ditch digger can charge for per hour when digging ditches?

The rule of 72 tells you approximately how long it takes for money invested at a given rate of compound interest to double in value.

Which of the following is the overarching principal that a financial manager should follow when making decisions?