Question 1

What is one of the prerequisite conditions for the Valuation Principle to work?

Accepted Answer

The availability of competitiv

Question 2

A company that manufactures copper piping is offering to trade you 5 925 tonnes of low-grade copper ore for 4 000 tonnes of high-grade copper ore. Assuming you currently have 4 000 tonnes 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 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, a large Coke and a large fries. Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac value meal for $4.79. Does an arbitrage opportunity exists and, if so, how would you exploit it and how much would you make on one value meal?

Accepted Answer

A) No, no arbitrage opportunity exists. 
B) Yes, buy a value meal and then sell the Big Mac, Coke and fries to make arbitrage profit of $0.38. 
C) Yes, buy a Big Mac, Coke and fries, then sell a value meal to make arbitrage profit of $1.09. 
D) Yes, buy a Big Mac, Coke and fries, then sell a value meal to make arbitrage profit of $0.68. 
A) No, no arbitrage opportunity exists. 
B) Yes, buy a value meal and then sell the Big Mac, Coke and fries to make arbitrage profit of $0.38. 
C) Yes, buy a Big Mac, Coke and fries, then sell a value meal to make arbitrage profit of $1.09. 
D) Yes, buy a Big Mac, Coke and fries, then sell a value meal to make arbitrage profit of $0.68.

Question 4

Any arbitrage opportunity will exploit any mispricing to restore the Law of One Price.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) $315.00 in one year. 
B) $350.00 in one year. 
C) $285.00 in one year. 
D) none of the above. 
A) $315.00 in one year. 
B) $350.00 in one year. 
C) $285.00 in one year. 
D) none of the above.

Question 6

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

Accepted Answer

A) Karen, who loans a friend $3 500, and whose friend pays back the loan in four annual instalments of $1 000 
B) Joe, who puts down $3 500 to buy a car, and then makes annual payments of $1 000 
C) Leo, who borrows $3 500, and then pays back the loan in four annual payments of $1 000 
D) Harry, who borrows $3 500, and then receives an annual payment of $1 000 
A) Karen, who loans a friend $3 500, and whose friend pays back the loan in four annual instalments of $1 000 
B) Joe, who puts down $3 500 to buy a car, and then makes annual payments of $1 000 
C) Leo, who borrows $3 500, and then pays back the loan in four annual payments of $1 000 
D) Harry, who borrows $3 500, and then receives an annual payment of $1 000

Question 7

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

Accepted Answer

A) demand 
B) cost 
C) supply 
D) price 
A) demand 
B) cost 
C) supply 
D) price

Question 8

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:

Accepted Answer

A) $257.29 
B) -$78.71 
C) $1.29 
D) $78.71 
A) $257.29 
B) -$78.71 
C) $1.29 
D) $78.71

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

How can we make a financial decision with cash flows occurring at different points in time?

Accepted Answer

We need to transform the cash flows to a

Question 11

Use the information for the question(s)below.
   As an oil refiner, you are able to produce $76.16 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC)oil. Because of its lower sulphur content, you can produce $77.25 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI)crude.
-Assuming you currently have 10 000 tonnes of WAI crude, the total benefits to you if you were to sell the 10 000 tonnes of WAI crude and use the proceeds to purchase and refine TOC crude is closest to:

Accepted Answer

A) $773 908 
B) $772 500 
C) $773 024 
D) $774 319 
A) $773 908 
B) $772 500 
C) $773 024 
D) $774 319

Question 12

What is the present value (PV)of $50 000 received 20 years from now, assuming the interest rate is 4% per year?

Accepted Answer

A) $22 819.35 
B) $40 000.00 
C) $10 000.00 
D) $5 242.88 
A) $22 819.35 
B) $40 000.00 
C) $10 000.00 
D) $5 242.88

Question 13

You are scheduled to receive $10 000 in one year. An increase in the interest rate will have what effect on the present value of this cash flow?

Accepted Answer

A) It will have no effect on the present value. 
B) It will cause the present value to rise. 
C) It will cause the present value to fall. 
D) The effect cannot be determined with the information provided. 
A) It will have no effect on the present value. 
B) It will cause the present value to rise. 
C) It will cause the present value to fall. 
D) The effect cannot be determined with the information provided.

Question 14

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors.

Accepted Answer

A) True 
 B)False

Question 15

Like other metals, uranium 308 is traded in competitive markets. Which of the following would most likely value a given weight of uranium 308 the most?

Accepted Answer

A) a metals trader who stockpiles and sells actual physical quantities of uranium 308 
B) a power station that uses uranium 308 to produce electrical energy 
C) a speculator who buys and sells uranium 308 on the market without ever using the metal 
D) All buyers and sellers would have the same value for a given weight of uranium. 
A) a metals trader who stockpiles and sells actual physical quantities of uranium 308 
B) a power station that uses uranium 308 to produce electrical energy 
C) a speculator who buys and sells uranium 308 on the market without ever using the metal 
D) All buyers and sellers would have the same value for a given weight of uranium.

Question 16

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that a manager makes as to whether his/her firm should try to acquire a stake in a fast-growing new internet-based company?

Accepted Answer

A) Both decisions involve the purchase of assets. 
B) Both decisions should be made based upon the trade-off between benefits and costs across time. 
C) Both decisions are vital to the financial health of the decision maker. 
D) Both decisions will be made based on what provides the greatest long-term benefit. 
A) Both decisions involve the purchase of assets. 
B) Both decisions should be made based upon the trade-off between benefits and costs across time. 
C) Both decisions are vital to the financial health of the decision maker. 
D) Both decisions will be made based on what provides the greatest long-term benefit.

Question 17

Stella deposits $5 000 in a savings account at a bank that offers interest of 5.5% on such accounts. What is the value of the money in her savings account in one year's time?

Accepted Answer

A) $5 275 
B) $5 135 
C) $4 739 
D) $7 750 
A) $5 275 
B) $5 135 
C) $4 739 
D) $7 750

Question 18

Why are arbitrage opportunities short-lived?

Accepted Answer

A) Arbitrage opportunities need a lot of information processing, which is very slow to arrive. 
B) Financial market regulations will kick in to restrict trade and effectively shut the opportunity down. 
C) Prices will fluctuate up and down as traders take advantage of the opportunity, resulting in the net present value (NPV)fluctuating between positive and negative values. 
D) Once investors take advantage of the opportunity, prices will respond so that the buying and selling price become equal. 
A) Arbitrage opportunities need a lot of information processing, which is very slow to arrive. 
B) Financial market regulations will kick in to restrict trade and effectively shut the opportunity down. 
C) Prices will fluctuate up and down as traders take advantage of the opportunity, resulting in the net present value (NPV)fluctuating between positive and negative values. 
D) Once investors take advantage of the opportunity, prices will respond so that the buying and selling price become equal.

Question 19

Which of the following is the best statement of the Valuation Principle?

Accepted Answer

A) It is not possible to compare costs and benefits that occur at different points in time, in different currencies, or with different risks. 
B) If equivalent goods or securities trade simultaneously in different markets across the world, they will trade for the same price. 
C) The value of a commodity or an asset to the firm or its investors is determined by its competitive market price. When the value of the benefits exceeds the value of the costs in terms of market prices, the decision will increase the market value of the firm. 
D) The rate at which we can exchange money today for money in the future by borrowing or investing is the current market interest rate and is the same across all banks. 
A) It is not possible to compare costs and benefits that occur at different points in time, in different currencies, or with different risks. 
B) If equivalent goods or securities trade simultaneously in different markets across the world, they will trade for the same price. 
C) The value of a commodity or an asset to the firm or its investors is determined by its competitive market price. When the value of the benefits exceeds the value of the costs in terms of market prices, the decision will increase the market value of the firm. 
D) The rate at which we can exchange money today for money in the future by borrowing or investing is the current market interest rate and is the same across all banks.

Question 20

What is a competitive market?

Accepted Answer

A) a market in which a good is bought for a lower price than that for which it can be sold 
B) a market in which a good is sold at a lower price than that for which it can be bought 
C) a market in which a good can be bought and sold at the same price 
D) a market in which goods can be bought at the ask price and sold at bid price 
A) a market in which a good is bought for a lower price than that for which it can be sold 
B) a market in which a good is sold at a lower price than that for which it can be bought 
C) a market in which a good can be bought and sold at the same price 
D) a market in which goods can be bought at the ask price and sold at bid price

Exam 3: Time Value of Money: an Introduction

What is one of the prerequisite conditions for the Valuation Principle to work?

A company that manufactures copper piping is offering to trade you 5 925 tonnes of low-grade copper ore for 4 000 tonnes of high-grade copper ore. Assuming you currently have 4 000 tonnes of high-grade ore, what are the total benefits and added benefits of taking the trade?

Any arbitrage opportunity will exploit any mispricing to restore the Law of One Price.

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

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

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

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:

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.

How can we make a financial decision with cash flows occurring at different points in time?

What is the present value (PV)of $50 000 received 20 years from now, assuming the interest rate is 4% per year?

You are scheduled to receive $10 000 in one year. An increase in the interest rate will have what effect on the present value of this cash flow?

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors.

Like other metals, uranium 308 is traded in competitive markets. Which of the following would most likely value a given weight of uranium 308 the most?

Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that a manager makes as to whether his/her firm should try to acquire a stake in a fast-growing new internet-based company?

Stella deposits $5 000 in a savings account at a bank that offers interest of 5.5% on such accounts. What is the value of the money in her savings account in one year's time?

Why are arbitrage opportunities short-lived?

Which of the following is the best statement of the Valuation Principle?

What is a competitive market?

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 today or