Question 1

Everything else being equal, the higher the discount rate, the higher the present value.

Accepted Answer

A) True 
 B)False

Question 2

Assume you have a choice between two deposit accounts. Account X has an annual percentage rate of 12.25 percent but with interest compounded monthly. Account Y has an annual percentage rate of 12.20 percent with interest compounded continuously. Which account provides the highest effective annual return?

Accepted Answer

Account X
EAR = [1 +

Question 3

Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 9 percent.

Accepted Answer

A)  $ 13,252 
B)  $141,588 
C)  $ 10,972 
D)  $ 79,348 
A)  $ 13,252 
B)  $141,588 
C)  $ 10,972 
D)  $ 79,348

Question 4

$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.

Accepted Answer

A)  $1,536 
B)  $ 672 
C)  $ 727 
D)  $1,245 
A)  $1,536 
B)  $ 672 
C)  $ 727 
D)  $1,245

Question 5

An annuity due is an amount that occurs at the beginning of each period.

Accepted Answer

A) True 
 B)False

Question 6

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is

Accepted Answer

A)  $28,974. 
B)  $31,292. 
C)  $14,494. 
D)  $13,420. 
A)  $28,974. 
B)  $31,292. 
C)  $14,494. 
D)  $13,420.

Question 7

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.

Accepted Answer

A) True 
 B)False

Question 8

The annual rate of return is variously referred to as the

Accepted Answer

A)  discount rate. 
B)  opportunity cost. 
C)  cost of capital. 
D)  all of the above. 
A)  discount rate. 
B)  opportunity cost. 
C)  cost of capital. 
D)  all of the above.

Question 9

An ordinary annuity is an annuity in which cash flows occurs at the beginning of each period.

Accepted Answer

A) True 
 B)False

Question 10

A deep-discount bond can be purchased for $312 and in 20 years it will be worth $1,000. What is the rate of interest on the bond?

Accepted Answer

Using financial calc

Question 11

The nominal (stated) annual rate is the rate of interest actually paid or earned.

Accepted Answer

A) True 
 B)False

Question 12

A local bank is offering a zero coupon certificate of deposit for $25,000. At maturity, three years from now, the investor will receive $32,000. What is the rate of return on this investment?

Accepted Answer

A)  3 percent 
B)  6 percent 
C)  9 percent 
D)  12 percent 
A)  3 percent 
B)  6 percent 
C)  9 percent 
D)  12 percent

Question 13

You are considering the purchase of new equipment for your company and you have narrowed down the possibilities to two models which perform equally well. However, the method of paying for the two models is different. Model A requires $5,000 per year payment for the next five years. Model B requires the following payment schedule. Which model should you buy if your opportunity cost is 8 percent?

Accepted Answer

Model A: PV = (CF/i)

Everything else being equal, the higher the discount rate, the higher the present value.

Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 9 percent.

$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.

An annuity due is an amount that occurs at the beginning of each period.

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.

The annual rate of return is variously referred to as the

An ordinary annuity is an annuity in which cash flows occurs at the beginning of each period.

A deep-discount bond can be purchased for $312 and in 20 years it will be worth $1,000. What is the rate of interest on the bond?

The nominal (stated) annual rate is the rate of interest actually paid or earned.

A local bank is offering a zero coupon certificate of deposit for $25,000. At maturity, three years from now, the investor will receive $32,000. What is the rate of return on this investment?

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows and Risk Refinements

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Filters

Exam 5: Time Value of Money

Everything else being equal, the higher the discount rate, the higher the present value.

Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 9 percent.

$100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.

An annuity due is an amount that occurs at the beginning of each period.

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is

The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity for interest rates greater than zero.

The annual rate of return is variously referred to as the

An ordinary annuity is an annuity in which cash flows occurs at the beginning of each period.

A deep-discount bond can be purchased for $312 and in 20 years it will be worth $1,000. What is the rate of interest on the bond?

The nominal (stated) annual rate is the rate of interest actually paid or earned.

A local bank is offering a zero coupon certificate of deposit for $25,000. At maturity, three years from now, the investor will receive $32,000. What is the rate of return on this investment?

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows and Risk Refinements

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Filters