Question 1

If $476 invested today yields $500 in one year's time, what is the discount factor?

Accepted Answer

A) 1.50 
B) 0.05 
C) 0.95 
D) 1.05 
A) 1.50 
B) 0.05 
C) 0.95 
D) 1.05 C

Question 2

If money is invested at 8% per year, after approximately how many years will the interest earned be equal to the original investment?

Accepted Answer

A) 6 years 
B) 9 years 
C) 12 years 
D) 5 years 
A) 6 years 
B) 9 years 
C) 12 years 
D) 5 years B

Question 3

Why should you approach every problem by drawing a timeline?

Accepted Answer

A) Timelines eliminate the majority of flawed financial decisions. 
B) Timelines identify events in a transaction or investment which might otherwise be easily overlooked. 
C) Timelines allow you to quickly sum cash flows over time. 
D) Timelines can be used to schedule events which are yet to occur. 
A) Timelines eliminate the majority of flawed financial decisions. 
B) Timelines identify events in a transaction or investment which might otherwise be easily overlooked. 
C) Timelines allow you to quickly sum cash flows over time. 
D) Timelines can be used to schedule events which are yet to occur. B

Question 4

Which of the following best explains why market prices are useful to a financial manager when performing a cost-benefit analysis?

Accepted Answer

A) They can be evaluated to determine whether the market in which the manager exchanges goods and services offers true value. 
B) They can be used to convert different services and commodities into equivalent cash values which can be compared. 
C) They allow all commodities and services to be assigned a fixed and unchanging value. 
D) They can be used to determine how much an asset can be sold for. 
A) They can be evaluated to determine whether the market in which the manager exchanges goods and services offers true value. 
B) They can be used to convert different services and commodities into equivalent cash values which can be compared. 
C) They allow all commodities and services to be assigned a fixed and unchanging value. 
D) They can be used to determine how much an asset can be sold for.

Question 5

An Australian manufacturer of sunscreen is contemplating using funds to purchase courtside advertising at major tennis matches such as the French Open and the US Open. Advertising at such well-viewed international events will then raise the domestic sales of the manufacturer's products. Which of the following factors will probably raise the LEAST difficulties when comparing the costs and benefits associated with this particular decision?

Accepted Answer

A) The costs and benefits will not be expressed in common terms. 
B) The costs will be incurred well before any benefits are likely to be seen. 
C) The costs and benefits will be difficult to measure. 
D) The costs and benefits will be in different currencies. 
A) The costs and benefits will not be expressed in common terms. 
B) The costs will be incurred well before any benefits are likely to be seen. 
C) The costs and benefits will be difficult to measure. 
D) The costs and benefits will be in different currencies.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

What is the present value (PV)of $100 000 received five years from now, assuming the interest rate is 8% per year?

Accepted Answer

A) $68 058.32 
B) $73 502.99 
C) $82 609.42 
D) $60 000.00 
A) $68 058.32 
B) $73 502.99 
C) $82 609.42 
D) $60 000.00

Question 8

If the one-year discount factor is equal to 0.90909, the interest must be equal to

Accepted Answer

A) 9.5%. 
B) 5.0%. 
C) 10.0%. 
D) 9.1%. 
A) 9.5%. 
B) 5.0%. 
C) 10.0%. 
D) 9.1%.

Question 9

An elderly relative offers to sell you their used 1 959 Jaguar Mark 9 saloon 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 Subaru Outback available to you for $35 000. What is the net value of buying the Jaguar?

Accepted Answer

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

Question 10

You are watching TV late one night and see an ad from ValuCo for the Dice-o-matic food slicer. You learn that the Dice-o-matic sells for $29.95. But wait, there's more! ValuCo is also including in this deal a set of Ginsu steak knives worth $10.95 and another free gift worth $7.95. Assuming that there is a competitive market for ValuCo items, at what price must ValuCo be selling this three-item Dice-o-matic deal to ensure the absence of an arbitrage opportunity and uphold the Law of One Price?

Accepted Answer

29.95 + 10

Question 11

If the risk-free rate of interest (rf)is 5%, then you should be indifferent between receiving $300 in one year or

Accepted Answer

A) $280.83 today. 
B) $285.71 today. 
C) $255.17 today. 
D) none of the above 
A) $280.83 today. 
B) $285.71 today. 
C) $255.17 today. 
D) none of the above

Question 12

To compute the future value of a cash flow, you must

Accepted Answer

A) discount it. 
B) arbitrage it. 
C) compound it. 
D) double it. 
A) discount it. 
B) arbitrage it. 
C) compound it. 
D) double it.

Question 13

If $15 000 is invested at 10% per year, in approximately how many years will the investment double?

Accepted Answer

A) 8.4 years 
B) 10.6 years 
C) 14.8 years 
D) 7.3 years 
A) 8.4 years 
B) 10.6 years 
C) 14.8 years 
D) 7.3 years

Question 14

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 typically sell oats in different packaging, which results in different prices within the same store. 
D) Grocery stores mark up the prices of their oats to make a profit. 
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 typically sell oats in different packaging, which results in different prices within the same store. 
D) Grocery stores mark up the prices of their oats to make a profit.

Question 15

A firm that provides tax services to the public intends to offer a premium tax-return service at a higher price than their current services. The managers of the company ask experts in marketing to determine how much an effective ad campaign for such a service would cost, and by how much sales would be increased. They consult experts in economics to calculate the increases in revenue from the success of the campaign, experts in operations to determine the cost of offering the service, and experts in strategy to anticipate possible countermoves by competitors. This example illustrates which of the following points about the role of financial managers?

Accepted Answer

A) Ultimately the decision whether to take a certain course of action rests with the financial managers of a company. 
B) All of the costs and benefits associated with a decision can never be fully identified. 
C) Real-world decisions are complex and require information from many sources if the decisions are to be valid. 
D) Determining the costs associated with making a decision is easier than determining the potential benefits of the decision. 
A) Ultimately the decision whether to take a certain course of action rests with the financial managers of a company. 
B) All of the costs and benefits associated with a decision can never be fully identified. 
C) Real-world decisions are complex and require information from many sources if the decisions are to be valid. 
D) Determining the costs associated with making a decision is easier than determining the potential benefits of the decision.

Question 16

A company intends to install new management software for its warehouse. The software will cost $50 000 to buy and will cost an additional $150 000 to install and implement. It is anticipated that it will save the company $45 000 through reductions in staff and $65 000 in general inventory costs in the first year after installation. What is the benefit to the company in the first year if they choose to install the software?

Accepted Answer

A) $180 000 
B) $90 000 
C) $110 000 
D) $45 000 
A) $180 000 
B) $90 000 
C) $110 000 
D) $45 000

Question 17

The Law of One Price states that if equivalent goods or securities are traded simultaneously in different competitive markets, they will trade for the same price in each market.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

You own 1 050 shares of Ausback Financial Group stock, currently trading for $56 per share. You are offered a deal where you can exchange these stocks for 925 shares of Newstar Energy stock, currently trading at $64 per share. What is the value of this trade, if you choose to make it?

Accepted Answer

A) -$480 
B) -$400 
C) $400 
D) -$540 
A) -$480 
B) -$400 
C) $400 
D) -$540

Question 20

An investment will pay you $150 in one year and $300 in two years. If the interest rate is 7.5%, what is the present value of these cash flows?

Accepted Answer

A) $385.71 
B) $399.13 
C) $385.00 
D) $358.32 
A) $385.71 
B) $399.13 
C) $385.00 
D) $358.32

If $476 invested today yields $500 in one year's time, what is the discount factor?

If money is invested at 8% per year, after approximately how many years will the interest earned be equal to the original investment?

Why should you approach every problem by drawing a timeline?

Which of the following best explains why market prices are useful to a financial manager when performing a cost-benefit analysis?

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

What is the present value (PV)of $100 000 received five years from now, assuming the interest rate is 8% per year?

If the one-year discount factor is equal to 0.90909, the interest must be equal to

If the risk-free rate of interest (r_f)is 5%, then you should be indifferent between receiving $300 in one year or

To compute the future value of a cash flow, you must

If $15 000 is invested at 10% per year, in approximately how many years will the investment double?

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?

The Law of One Price states that if equivalent goods or securities are traded simultaneously in different competitive markets, they will trade for the same price in each market.

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

You own 1 050 shares of Ausback Financial Group stock, currently trading for $56 per share. You are offered a deal where you can exchange these stocks for 925 shares of Newstar Energy stock, currently trading at $64 per share. What is the value of this trade, if you choose to make it?

An investment will pay you $150 in one year and $300 in two years. If the interest rate is 7.5%, what is the present value of these cash flows?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro-Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Insurance and Risk Management

Filters

Exam 3: Time Value of Money: an Introduction

If $476 invested today yields $500 in one year's time, what is the discount factor?

If money is invested at 8% per year, after approximately how many years will the interest earned be equal to the original investment?

Why should you approach every problem by drawing a timeline?

Which of the following best explains why market prices are useful to a financial manager when performing a cost-benefit analysis?

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

What is the present value (PV)of $100 000 received five years from now, assuming the interest rate is 8% per year?

If the one-year discount factor is equal to 0.90909, the interest must be equal to

If the risk-free rate of interest (rf)is 5%, then you should be indifferent between receiving $300 in one year or

To compute the future value of a cash flow, you must

If $15 000 is invested at 10% per year, in approximately how many years will the investment double?

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?

The Law of One Price states that if equivalent goods or securities are traded simultaneously in different competitive markets, they will trade for the same price in each market.

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

You own 1 050 shares of Ausback Financial Group stock, currently trading for $56 per share. You are offered a deal where you can exchange these stocks for 925 shares of Newstar Energy stock, currently trading at $64 per share. What is the value of this trade, if you choose to make it?

An investment will pay you $150 in one year and $300 in two years. If the interest rate is 7.5%, what is the present value of these cash flows?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro-Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Insurance and Risk Management

Filters

If the risk-free rate of interest (r_f)is 5%, then you should be indifferent between receiving $300 in one year or