Question 1

A dollar today and a dollar in one year may be considered to be equivalent.

Accepted Answer

A) True 
 B)False

Question 2

An investment will pay $205,000 at the end of next year for an investment of $183,000 at the start of the year.If the market interest rate is 8% over the same period,should this investment be made?

Accepted Answer

A) No,because the investment will yield $6240 less than putting the money in a bank. 
B) Yes,because the investment will yield $2360 more than putting the money in a bank. 
C) Yes,because the investment will yield $4280 more than putting the money in a bank. 
D) Yes,because the investment will yield $7360 more than putting the money in a bank. 
A) No,because the investment will yield $6240 less than putting the money in a bank. 
B) Yes,because the investment will yield $2360 more than putting the money in a bank. 
C) Yes,because the investment will yield $4280 more than putting the money in a bank. 
D) Yes,because the investment will yield $7360 more than putting the money in a bank.

Question 3

Use the table for the question(s)below.
Consider the following prices from a McDonald's Restaurant:
  
-A McDonald's Big Mac value meal consists of a Big Mac sandwich,large Coke,and a large fry.Assuming that there is a competitive market for McDonald's food items,at what price must a Big Mac value meal sell to insure the absence of an arbitrage opportunity and uphold the Law of One Price?

Accepted Answer

A) $4.08 
B) $4.38 
C) $5.47 
D) $5.77 
A) $4.08 
B) $4.38 
C) $5.47 
D) $5.77

Question 4

A firm has contracted to supply 500,000 gallons of propane fuel for $1.49 million to the local municipality.The municipality wants to break the contract.What does the minimum current market price of propane need to be in order for the firm to benefit from breaking the contract?

Accepted Answer

A) greater than $2.97 per gallon 
B) greater than $2.98 per gallon 
C) greater than $2.99 per gallon 
D) greater than $3.00 per gallon 
A) greater than $2.97 per gallon 
B) greater than $2.98 per gallon 
C) greater than $2.99 per gallon 
D) greater than $3.00 per gallon

Question 5

The timeline shown below best describes the cash flow of which of the following people?

Accepted Answer

A) Joe,who puts down $3500 to buy a car,and then makes annual payments of $1000 
B) Harry,who borrows $3500,and then receives an annual payment of $1000 
C) Karen,who loans a friend $3500,which friend then pays back the loan in four annual installments of $1000 
D) Leo,who borrows $3500,and then pays back the loan in four annual payments of $1000 
A) Joe,who puts down $3500 to buy a car,and then makes annual payments of $1000 
B) Harry,who borrows $3500,and then receives an annual payment of $1000 
C) Karen,who loans a friend $3500,which friend then pays back the loan in four annual installments of $1000 
D) Leo,who borrows $3500,and then pays back the loan in four annual payments of $1000

Question 6

An elderly relative offers to sell you their used 1958 Cadillac Eldorado for $50,000.You note that very similar cars are selling on the open market for $90,000.You don't care for classic cars and would rather buy a new Ford Explorer for $35,000.What is the net value of buying the Cadillac?

Accepted Answer

A) $90,000,since the Cadillac could be sold for this price. 
B) $50,000,since the Cadillac could be bought for this price. 
C) $40,000,since this is the difference between purchase and resale price of the Cadillac. 
D) $35,000,since this is the value of the car that you really want to buy. 
A) $90,000,since the Cadillac could be sold for this price. 
B) $50,000,since the Cadillac could be bought for this price. 
C) $40,000,since this is the difference between purchase and resale price of the Cadillac. 
D) $35,000,since this is the value of the car that you really want to buy.

Question 7

To calculate a cash flow's present value (PV),you must compound it.

Accepted Answer

A) True 
 B)False

Question 8

Why should interest rates be generally positive?

Accepted Answer

An investor should be compensa

Question 9

Owen expects to receive $20,000 at the end of next year from a trust fund.If a bank loans money at an interest rate of 7.5%,how much money can he borrow from the bank on the basis of this information?

Accepted Answer

A) $11,428 
B) $15,000 
C) $18,605 
D) $21,500 
A) $11,428 
B) $15,000 
C) $18,605 
D) $21,500

Question 10

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.
-Assuming you currently have 10,000 Bbls of WTI crude,the added benefit (cost)to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

Accepted Answer

A) ($1400) 
B) $1400 
C) ($3908) 
D) $3908 
A) ($1400) 
B) $1400 
C) ($3908) 
D) $3908

Question 11

The one-year discount factor is the discount at which we can purchase money in the future.

Accepted Answer

A) True 
 B)False

Question 12

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 just purchased 10,000 Bbls of WTI crude at the current market price,the total benefit (cost)to you if you take the trade is closest to:

Accepted Answer

A) $730,600 
B) $770,000 
C) $771,400 
D) $773,908 
A) $730,600 
B) $770,000 
C) $771,400 
D) $773,908

Question 13

Walgreens Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreens Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 100 shares?

Accepted Answer

A) No,no arbitrage opportunity exists. 
B) Yes,buy on NASDAQ and sell on NYSE,make $25. 
C) Yes,buy on NYSE and sell on NASDAQ,make $25. 
D) Yes,buy on NASDAQ and sell on NYSE,make $250. 
A) No,no arbitrage opportunity exists. 
B) Yes,buy on NASDAQ and sell on NYSE,make $25. 
C) Yes,buy on NYSE and sell on NASDAQ,make $25. 
D) Yes,buy on NASDAQ and sell on NYSE,make $250.

Question 14

On Commodity Exchange A it is possible to buy and sell crude oil at $117 per barrel,while on Commodity Exchange B crude oil can be bought and sold at $118 per barrel.If there are transaction costs of 1% when buying or selling on either exchange,what is the net effect of buying a barrel of oil on Exchange A and selling it on Exchange B?

Accepted Answer

A) -$1.35 
B) -$0.17 
C) $0.99 
D) $1.01 
A) -$1.35 
B) -$0.17 
C) $0.99 
D) $1.01

Question 15

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.
-Assuming you just purchased 10,000 Bbls of WTI crude at the current market price,the total benefit (cost)to you if you were to refine this crude oil and sell the unleaded gasoline is closest to:

Accepted Answer

A) $730,600 
B) $770,000 
C) $771,400 
D) $773,908 
A) $730,600 
B) $770,000 
C) $771,400 
D) $773,908

Question 16

Use the information for the question(s)below.
   Coloma Cooper Incorporated is able to produce $640 worth of copper from one ton of low-grade copper ore.Because of its higher copper content,Coloma can produce $940 worth of copper from one ton of high-grade copper ore.
-A company that manufactures copper piping is offering to trade you 5925 tons of low-grade copper ore for 4000 tons of high-grade copper ore.Assuming you currently have 4000 tons of high-grade ore,what are the total benefits and added benefits of taking the trade?

Accepted Answer

Total Benefits
No trade and refine high-

Question 17

On the day Harry was born,his parents put $1000 into an investment account that promises to pay a fixed interest rate of 4 percent per year.How much money will Harry have in this account when he turns 18?

Accepted Answer

A) $1,720 
B) $2,026 
C) $2,804 
D) $4,806 
A) $1,720 
B) $2,026 
C) $2,804 
D) $4,806

Question 18

A company decides to close down its plastics division.It has on hand 20 tons of styrene monomer,a raw material that has a market price of $700 per ton,which had been originally purchased at $650 per ton.Given that the company has no use for the styrene monomer,and that it would cost the company $5000 to store it,what is the value of the 20 tons of styrene monomer to the company?

Accepted Answer

A) -$5000 
B) $0 
C) $13,000 
D) $14,000 
A) -$5000 
B) $0 
C) $13,000 
D) $14,000

Question 19

Samantha has holdings of 250 troy ounces of platinum,currently valued at $815 dollars per ounce.She estimates that the price of platinum will rise to $850 per ounce in the next year.If the interest rate is 8%,should she sell the platinum today?

Accepted Answer

A) Yes,as the difference between selling now and selling in one year is $7550 dollars today. 
B) Yes,as the difference between selling now and selling in one year is $6991 dollars today. 
C) Yes,as the difference between selling now and selling in one year is $5513 dollars today. 
D) No,as the difference between selling now and selling in one year is -$6988 dollars today. 
A) Yes,as the difference between selling now and selling in one year is $7550 dollars today. 
B) Yes,as the difference between selling now and selling in one year is $6991 dollars today. 
C) Yes,as the difference between selling now and selling in one year is $5513 dollars today. 
D) No,as the difference between selling now and selling in one year is -$6988 dollars today.

Question 20

Which of the following best explains why you cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats?

Accepted Answer

A) You can buy the oats at the price posted by the store,but the store will not buy oats from you for the same price. 
B) The posted prices of oats can vary widely between grocery stores,even within the same local area. 
C) Grocery stores mark up the prices of their oats up to make a profit. 
D) Grocery stores typically sell oats in different packaging,which results in different prices within the same store. 
A) You can buy the oats at the price posted by the store,but the store will not buy oats from you for the same price. 
B) The posted prices of oats can vary widely between grocery stores,even within the same local area. 
C) Grocery stores mark up the prices of their oats up to make a profit. 
D) Grocery stores typically sell oats in different packaging,which results in different prices within the same store.

A dollar today and a dollar in one year may be considered to be equivalent.

An investment will pay $205,000 at the end of next year for an investment of $183,000 at the start of the year.If the market interest rate is 8% over the same period,should this investment be made?

A firm has contracted to supply 500,000 gallons of propane fuel for $1.49 million to the local municipality.The municipality wants to break the contract.What does the minimum current market price of propane need to be in order for the firm to benefit from breaking the contract?

The timeline shown below best describes the cash flow of which of the following people?

An elderly relative offers to sell you their used 1958 Cadillac Eldorado for $50,000.You note that very similar cars are selling on the open market for $90,000.You don't care for classic cars and would rather buy a new Ford Explorer for $35,000.What is the net value of buying the Cadillac?

To calculate a cash flow's present value (PV),you must compound it.

Why should interest rates be generally positive?

Owen expects to receive $20,000 at the end of next year from a trust fund.If a bank loans money at an interest rate of 7.5%,how much money can he borrow from the bank on the basis of this information?

The one-year discount factor is the discount at which we can purchase money in the future.

Walgreens Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreens Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 100 shares?

On the day Harry was born,his parents put $1000 into an investment account that promises to pay a fixed interest rate of 4 percent per year.How much money will Harry have in this account when he turns 18?

Samantha has holdings of 250 troy ounces of platinum,currently valued at $815 dollars per ounce.She estimates that the price of platinum will rise to $850 per ounce in the next year.If the interest rate is 8%,should she sell the platinum today?

Which of the following best explains why you cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: A Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 3: Time Value of Money: An Introduction

A dollar today and a dollar in one year may be considered to be equivalent.

An investment will pay $205,000 at the end of next year for an investment of $183,000 at the start of the year.If the market interest rate is 8% over the same period,should this investment be made?

A firm has contracted to supply 500,000 gallons of propane fuel for $1.49 million to the local municipality.The municipality wants to break the contract.What does the minimum current market price of propane need to be in order for the firm to benefit from breaking the contract?

The timeline shown below best describes the cash flow of which of the following people?

An elderly relative offers to sell you their used 1958 Cadillac Eldorado for $50,000.You note that very similar cars are selling on the open market for $90,000.You don't care for classic cars and would rather buy a new Ford Explorer for $35,000.What is the net value of buying the Cadillac?

To calculate a cash flow's present value (PV),you must compound it.

Why should interest rates be generally positive?

Owen expects to receive $20,000 at the end of next year from a trust fund.If a bank loans money at an interest rate of 7.5%,how much money can he borrow from the bank on the basis of this information?

The one-year discount factor is the discount at which we can purchase money in the future.

On the day Harry was born,his parents put $1000 into an investment account that promises to pay a fixed interest rate of 4 percent per year.How much money will Harry have in this account when he turns 18?

Samantha has holdings of 250 troy ounces of platinum,currently valued at $815 dollars per ounce.She estimates that the price of platinum will rise to $850 per ounce in the next year.If the interest rate is 8%,should she sell the platinum today?

Which of the following best explains why you cannot use the price of rolled oats at a local supermarket as the competitive market value of rolled oats?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: A Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters