Exam 3: The Valuation Principle: the Foundation of Financial Decision Making

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

Advanced Micro Devices (NYSE: AMD)is currently trading at $20.75 on the NYSE.Advanced Micro Devices is also listed on NASDAQ and assume it is currently trading on NASDAQ at $20.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 1000 shares?

A lender lends $10,000,which is to be repaid in annual payments of $2,000 for 6 years.Which of the following shows the timeline of the loan from the lender's perspective?

What is the future value (FV)of $72,000 in 25 years,assuming the interest rate is 5.5% per year?

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.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?

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

You decide to $10,000 in a bank account.If the value of your savings grows to $10,200 in one year's time,what is the interest rate on your savings?

The timeline shown below best describes which of the following situations?

Steve is offered an investment where for every $1.00 invested today,he will receive $1.10 at the end of each of the next five years.Steve concludes that in five years time he will have $1.10 for every $1.00 invested and that this investment will increase his personal value.What is Steve's major error in reasoning when making this decision?

In a trade with the government of an oil-producing nation,a manufacturer will deliver 14 Caterpillar D9 tractors,with a value of $350,000 per tractor,and receive 45,000 barrels of oil,valued at $115 per barrel.What is the net benefit of this trade to the manufacturer?

Michelle is saving for a new car.She wants to have $25,000 in her account in 3 years.If her account pays 11% interest,how much money will she need to put in her account now,to ensure that she has $25,000 in 3 years?

If the future value (FV)in two years of $100,000 invested in a certain fund that compounds it at a fixed rate annually is $116,640,at what rate has it been compounded?

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.

Explain why a dollar today is worth more than a dollar tomorrow.

How can we convert the value of money from one point in time to another?

What is the future value (FV)of $10,000 in 50 years,assuming the interest rate is 4% per year?

How can we perform cost benefit analysis in case they are occurring in different currencies?

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?

You have made an investment which will pay you $10,485 in one year's time.If the discount factor is 0.9728,what is the present value of your investment?

Costs and benefits must be put in common terms if they are to be compared.