Question 1

The present value of a set of cash flows is:

Accepted Answer

A)  the sum of the present value of the individual cash flows. 
B)  the sum of individual cash flows which are then discounted. 
C)  not equal to the sum of the present value of the individual cash flows. 
D)  always greater than the present value of the investment. 
A)  the sum of the present value of the individual cash flows. 
B)  the sum of individual cash flows which are then discounted. 
C)  not equal to the sum of the present value of the individual cash flows. 
D)  always greater than the present value of the investment.

Question 2

A mortgage instrument pays $1.5 million at the end of each of the next two years.An investor has an alternative investment with the same amount of risk that will pay interest at 8% compounded semiannually.Which of the following amounts is closest to what the investor should pay for the mortgage instrument?

Accepted Answer

A)  $1.28 million. 
B)  $1.39 million. 
C)  $2.67 million. 
D)  $2.72 million. 
A)  $1.28 million. 
B)  $1.39 million. 
C)  $2.67 million. 
D)  $2.72 million.

Question 3

In the equation,NPV = -Cost + PV,the term Cost is the:

Accepted Answer

A)  current value of the commitment fee today. 
B)  current value of the terminal cash flow. 
C)  initial cash outflow. 
D)  present value of the variable costs. 
A)  current value of the commitment fee today. 
B)  current value of the terminal cash flow. 
C)  initial cash outflow. 
D)  present value of the variable costs.

Question 4

Which of the following amounts is closest to the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%?

Accepted Answer

A)  $18,669 
B)  $18,658 
C)  $19,218 
D)  $18,480 
E)  $17,951 
A)  $18,669 
B)  $18,658 
C)  $19,218 
D)  $18,480 
E)  $17,951

Question 5

Tina is able to pay $160 a month for five years for a car.If the interest rate is 4.9%,how much can Tina afford to borrow to buy a car?

Accepted Answer

A)  $6,961.36 
B)  $8,499.13 
C)  $8,533.84 
D)  $8,686.82 
E)  $9,588.05 
A)  $6,961.36 
B)  $8,499.13 
C)  $8,533.84 
D)  $8,686.82 
E)  $9,588.05

Question 6

The Ajax Co.just decided to save $1,500 a month for the next five years as a safety net for recessionary periods.The money will be set aside in a separate savings account which pays 3.25% interest compounded monthly.It deposits the first $1,500 today.If the company had wanted to deposit an equivalent lump sum today,how much would it have had to deposit?

Accepted Answer

A)  $82,964.59 
B)  $83,189.29 
C)  $83,428.87 
D)  $83,687.23 
E)  $84,998.01 
A)  $82,964.59 
B)  $83,189.29 
C)  $83,428.87 
D)  $83,687.23 
E)  $84,998.01

Question 7

The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.

Accepted Answer

A)  effective annual 
B)  annual percentage 
C)  periodic interest 
D)  compound interest 
A)  effective annual 
B)  annual percentage 
C)  periodic interest 
D)  compound interest

Question 8

Joe,a freshman in college,needs $55,000 in 4 years to buy the car of his dreams.If his investments earn 6% interest per year,how much must he invest today to have that amount at graduation? If he invested once a year for four years beginning today until the end of the 4 years how much must he invest?

Accepted Answer

$55000/(1.06)⁴ = 43,5

Question 9

The present value of future cash flows minus initial cost is called:

Accepted Answer

A)  the future savings of the project. 
B)  the net present value of the project. 
C)  the equivalent sum of the investment. 
D)  the initial investment risk equivalent value. 
A)  the future savings of the project. 
B)  the net present value of the project. 
C)  the equivalent sum of the investment. 
D)  the initial investment risk equivalent value.

Question 10

Which of the following statements is true?

Accepted Answer

A)  Regardless of the value of the interest rate, increasing the compounding frequency will decrease the future value. 
B)  Regardless of the value of the interest rate, increasing the compounding frequency will increase the future value. 
C)  There is a relationship between the future value of investment and the effect of compounding frequency. At high interest rates, increases in compounding frequency will decrease the future value. 
D)  There is a relationship between the future value of investment and the effect of compounding frequency. At low interest rates, increases in compounding frequency will decrease the future value. 
A)  Regardless of the value of the interest rate, increasing the compounding frequency will decrease the future value. 
B)  Regardless of the value of the interest rate, increasing the compounding frequency will increase the future value. 
C)  There is a relationship between the future value of investment and the effect of compounding frequency. At high interest rates, increases in compounding frequency will decrease the future value. 
D)  There is a relationship between the future value of investment and the effect of compounding frequency. At low interest rates, increases in compounding frequency will decrease the future value.

Question 11

There are three factors that affect the present value of an annuity.Explain what these three factors are and discuss how an increase in each will impact the present value of the annuity.

Accepted Answer

The factors are the interest rate,paymen

Question 12

The future value table provides the factors for the:

Accepted Answer

A)  compound interest rate for 1/N periods for a specified interest rate. 
B)  compound value of a dollar for 1/N periods for a specified interest rates. 
C)  single value of a dollar for N periods for a specified interest rate. 
D)  simple interest rate for N periods. 
A)  compound interest rate for 1/N periods for a specified interest rate. 
B)  compound value of a dollar for 1/N periods for a specified interest rates. 
C)  single value of a dollar for N periods for a specified interest rate. 
D)  simple interest rate for N periods.

Question 13

A perpetuity differs from an annuity because:

Accepted Answer

A)  perpetuity payments vary with the rate of inflation. 
B)  perpetuity payments vary with the market rate of interest. 
C)  perpetuity payments are variable while annuity payments are constant. 
D)  perpetuity payments never cease. 
E)  annuity payments never cease. 
A)  perpetuity payments vary with the rate of inflation. 
B)  perpetuity payments vary with the market rate of interest. 
C)  perpetuity payments are variable while annuity payments are constant. 
D)  perpetuity payments never cease. 
E)  annuity payments never cease.

Question 14

If the compound period is greater than one:

Accepted Answer

A)  the effective annual interest rate is always equal to the annual percentage rate. 
B)  the effective annual interest rate is always less than the annual percentage rate. 
C)  the effective annual interest rate is always greater than the annual percentage rate. 
D)  the effective annual interest rate is never greater than the annual percentage rate. 
A)  the effective annual interest rate is always equal to the annual percentage rate. 
B)  the effective annual interest rate is always less than the annual percentage rate. 
C)  the effective annual interest rate is always greater than the annual percentage rate. 
D)  the effective annual interest rate is never greater than the annual percentage rate.

Question 15

What is meant by "amortizing a loan"?

Accepted Answer

Amortizing a loan is when the borrower p

Question 16

Thorton will receive an inheritance of $500,000 three years from now.Thorton's personal discount rate corresponds to a 10% interest rate compounded semiannually.Which of the following values is closest to the amount that Thorton should accept today for the right to his inheritance?

Accepted Answer

A)  $373,108 
B)  $375,657 
C)  $665,500 
D)  $670,048 
A)  $373,108 
B)  $375,657 
C)  $665,500 
D)  $670,048

Question 17

A court settlement awarded an accident victim four payments of $50,000 to be paid at the end of each of the next four years.Using a discount rate of 4%,calculate the present value of the annuity.

Accepted Answer

A)  $173,255 
B)  $178,495 
C)  $181,495 
D)  $184,095 
E)  $200,000 
A)  $173,255 
B)  $178,495 
C)  $181,495 
D)  $184,095 
E)  $200,000

Question 18

As an excellent student in environmental ecology you have been awarded the "Clean Effluent Prize" by state agency.You (or your estate)are to receive $300 forever from the state or the agency will allow you to choose $400 over the next 25 years.Payments are to be received semi-annually and if the market rate of interest is 6% what is the value of the two options respectively?

Accepted Answer

A)  $30,000; $10,000.25 
B)  $5,000; $5,145.95 
C)  $10,000; $6,304.74 
D)  $2,500; $3,859.46 
E)  $6,666.67; $5,113.34 
A)  $30,000; $10,000.25 
B)  $5,000; $5,145.95 
C)  $10,000; $6,304.74 
D)  $2,500; $3,859.46 
E)  $6,666.67; $5,113.34

Question 19

Find the present value of $5325.00 to be received in one period if the rate is 6.50%.

Accepted Answer

A)  $5,000.00 
B)  $5,071.43 
C)  $5,671.13 
D)  $5,591.25 
A)  $5,000.00 
B)  $5,071.43 
C)  $5,671.13 
D)  $5,591.25

Question 20

Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6 percent compounded monthly?

Accepted Answer

A)  $5,352 
B)  $5,362 
C)  $5,350 
D)  $5,293 
E)  $6,183 
A)  $5,352 
B)  $5,362 
C)  $5,350 
D)  $5,293 
E)  $6,183

Exam 5: The Time Value of Money

The present value of a set of cash flows is:

In the equation,NPV = -Cost + PV,the term Cost is the:

Which of the following amounts is closest to the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%?

Tina is able to pay $160 a month for five years for a car.If the interest rate is 4.9%,how much can Tina afford to borrow to buy a car?

The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.

The present value of future cash flows minus initial cost is called:

Which of the following statements is true?

There are three factors that affect the present value of an annuity.Explain what these three factors are and discuss how an increase in each will impact the present value of the annuity.

The future value table provides the factors for the:

A perpetuity differs from an annuity because:

If the compound period is greater than one:

What is meant by "amortizing a loan"?

Thorton will receive an inheritance of $500,000 three years from now.Thorton's personal discount rate corresponds to a 10% interest rate compounded semiannually.Which of the following values is closest to the amount that Thorton should accept today for the right to his inheritance?

A court settlement awarded an accident victim four payments of $50,000 to be paid at the end of each of the next four years.Using a discount rate of 4%,calculate the present value of the annuity.

Find the present value of $5325.00 to be received in one period if the rate is 6.50%.

Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6 percent compounded monthly?

Introduction to Corporate Finance

Accounting Statements and Cash Flow

Financial Planning and Growth

Financial Markets and Net Present Value: First Principles of Finance

How to Value Bonds and Stocks

Net Present Value and Other Investment Rules

Net Present Value and Capital Budgeting

Risk Analysis,real Options,and Capital Budgeting

Risk and Return: Lessons From Market History

Risk and Return: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk,return,and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Issuing Equity Securities to the Public

Long-Term Debt

Leasing

Options and Corporate Finance: Basic Concepts

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

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