Question 1

The selection of an appropriate discount rate for a particular project is primarily dependent upon the project's

Accepted Answer

A) time to closure. 
B) initial cost. 
C) level of risk. 
D) starting date. 
E) expected dollar return. 
A) time to closure. 
B) initial cost. 
C) level of risk. 
D) starting date. 
E) expected dollar return.

Question 2

You expect to receive $1,800 at the end of 5 years.What is the present value of this payment if the interest rate is 7.12 percent,compounded continuously?

Accepted Answer

A) $1,271.64 
B) $1,276.20 
C) $1,269.41 
D) $1,257.78 
E) $1,260.85 
A) $1,271.64 
B) $1,276.20 
C) $1,269.41 
D) $1,257.78 
E) $1,260.85

Question 3

The Life Trust Co.purchased an investment that will pay $5,000 next year.Every year thereafter,the payment will increase by 1.25 percent.What is the value of this investment if the required rate of return is 8.3 percent?

Accepted Answer

A) $62,300.00 
B) $60,993.98 
C) $65,647.81 
D) $70,921.99 
E) $73,984.23 
A) $62,300.00 
B) $60,993.98 
C) $65,647.81 
D) $70,921.99 
E) $73,984.23

Question 4

An investment will pay $5,500 every 2 years for the next 40 years.The annual rate of interest is 12 percent.What is the value of this investment at the end of Year 40?

Accepted Answer

A) $1,630,590.34 
B) $1,096,222.20 
C) $1,206,504.11 
D) $1,353,997.81 
E) $1,990,095.67 
A) $1,630,590.34 
B) $1,096,222.20 
C) $1,206,504.11 
D) $1,353,997.81 
E) $1,990,095.67

Question 5

Assume a stated rate of interest of 8 percent.Which form of compounding will produce the highest effective rate of interest?

Accepted Answer

A) Daily 
B) Annual 
C) Continuous 
D) Monthly 
E) Semiannual 
A) Daily 
B) Annual 
C) Continuous 
D) Monthly 
E) Semiannual

Question 6

Which one of the following statements concerning the annual percentage rate (APR)is correct?

Accepted Answer

A) The APR considers interest on interest. 
B) The rate of interest you actually pay on a loan is called the APR. 
C) The effective annual rate is lower than the APR when an interest rate is compounded quarterly. 
D) Lenders are not permitted to disclose or advertise the APR of a loan. 
E) The APR equals the effective annual rate when simple interest is applied to a loan. 
A) The APR considers interest on interest. 
B) The rate of interest you actually pay on a loan is called the APR. 
C) The effective annual rate is lower than the APR when an interest rate is compounded quarterly. 
D) Lenders are not permitted to disclose or advertise the APR of a loan. 
E) The APR equals the effective annual rate when simple interest is applied to a loan.

Question 7

Aeron Electrics borrowed $160,000 for 4 years at an interest rate of 6 percent,compounded annually.The loan requires repayment of the interest annually.In addition,the principal must be repaid in equal annual payments.What is the amount of the total loan payment in Year 3?

Accepted Answer

A) $42,400.00 
B) $43,600.00 
C) $50,499.08 
D) $47,277.20 
E) $44,800.00 
A) $42,400.00 
B) $43,600.00 
C) $50,499.08 
D) $47,277.20 
E) $44,800.00

Question 8

An annuity costs $185,000 today and provides monthly payments of $950 for 40 years.The first payment occurs 1 month from today.What annual rate of return does this annuity offer?

Accepted Answer

A) 5)33% 
B) 5)47% 
C) 5)16% 
D) 4)79% 
E) 4)56% 
A) 5)33% 
B) 5)47% 
C) 5)16% 
D) 4)79% 
E) 4)56%

Question 9

You expect to receive $5,400 2 years from now,$6,300 3 years from now,and $10,900 6 years from now.What is the future value of these cash flows 7 years from now if the interest rate is 7.4 percent,compounded annually?

Accepted Answer

A) $25,916.78 
B) $28,109.08 
C) $27,805.20 
D) $29,341.02 
E) $25,889.39 
A) $25,916.78 
B) $28,109.08 
C) $27,805.20 
D) $29,341.02 
E) $25,889.39

Question 10

Outreach Funds established a trust that provides $150,000 in scholarships each year forever.The trust fund earns a rate of return of 4.03 percent.How much money was contributed to the fund 20 years ago,assuming that only the interest income is distributed?

Accepted Answer

A) $2,291,613.13 
B) $3,722,084.37 
C) $3,225,000.00 
D) $3,000,000.00 
E) $3,100,348.24 
A) $2,291,613.13 
B) $3,722,084.37 
C) $3,225,000.00 
D) $3,000,000.00 
E) $3,100,348.24

Question 11

Which type(s)of loan can be repaid with annuity payments?

Accepted Answer

A) Pure discount loan 
B) Both pure discount and interest-only loans 
C) Amortized loan 
D) Both interest-only and amortized loans 
E) Interest-only loan 
A) Pure discount loan 
B) Both pure discount and interest-only loans 
C) Amortized loan 
D) Both interest-only and amortized loans 
E) Interest-only loan

Question 12

Clint just won a prize that will pay him $15,000 a year for 15 years,starting at the end of Year 5.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

Accepted Answer

A) $102,655.52 
B) $98,550.64 
C) $104,225.76 
D) $116,191.91 
E) $108,806.61 
A) $102,655.52 
B) $98,550.64 
C) $104,225.76 
D) $116,191.91 
E) $108,806.61

Question 13

Today,the Future Trust Co.purchased an investment that will pay $6,000 at the end of 5 years.Every year thereafter,the payment will increase by 1.6 percent.What is the value of this investment today if the required rate of return is 7.4 percent?

Accepted Answer

A) $62,300.00 
B) $73,894.23 
C) $65,647.81 
D) $77,751.03 
E) $83,984.23 
A) $62,300.00 
B) $73,894.23 
C) $65,647.81 
D) $77,751.03 
E) $83,984.23

Question 14

Discounting cash flows involves

Accepted Answer

A) taking the cash discount offered on trade merchandise. 
B) estimating only the cash flows that occur in the first 4 years of a project. 
C) adjusting only those cash flows that occur at least 10 years in the future. 
D) multiplying expected future cash flows by the cost of capital. 
E) adjusting all expected future cash flows to their current value. 
A) taking the cash discount offered on trade merchandise. 
B) estimating only the cash flows that occur in the first 4 years of a project. 
C) adjusting only those cash flows that occur at least 10 years in the future. 
D) multiplying expected future cash flows by the cost of capital. 
E) adjusting all expected future cash flows to their current value.

Question 15

You are comparing two investments,A and B,with unequal annual cash flows and varying numbers of years.Which one of these statements is correct regarding this comparison?

Accepted Answer

A) If A has the higher net present value at one discount rate,then A will have the higher net present value at all other discount rates. 
B) If B has a higher net present value,then B will have the higher net future value at any point in time,given a stated discount rate. 
C) If B has a higher net future value at one discount rate,then B will have the higher net present value given any discount rate. 
D) The two projects cannot be compared since their time periods differ in length. 
E) The project with the greater number of years will have the higher present value. 
A) If A has the higher net present value at one discount rate,then A will have the higher net present value at all other discount rates. 
B) If B has a higher net present value,then B will have the higher net future value at any point in time,given a stated discount rate. 
C) If B has a higher net future value at one discount rate,then B will have the higher net present value given any discount rate. 
D) The two projects cannot be compared since their time periods differ in length. 
E) The project with the greater number of years will have the higher present value.

Question 16

Alex estimates that he will have $47,500 in student loans by the time he graduates.The interest rate is 7.2 percent,compounded monthly.If he wants to have this debt paid in full within 5 years following graduation,how much must he pay each month?

Accepted Answer

A) $745.69 
B) $873.65 
C) $945.05 
D) $741.67 
E) $980.40 
A) $745.69 
B) $873.65 
C) $945.05 
D) $741.67 
E) $980.40

Question 17

You are comparing two annuities with equal present values.The applicable discount rate is 6.65 percent,compounded annually.One annuity pays $4,500 on the first day of each year for 25 years.How much does the second annuity pay each year for 25 years if it pays at the end of each year?

Accepted Answer

A) $4,708.03 
B) $4,623.87 
C) $4,608.51 
D) $4,799.25 
E) $4,747.50 
A) $4,708.03 
B) $4,623.87 
C) $4,608.51 
D) $4,799.25 
E) $4,747.50

Question 18

The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is computed as

Accepted Answer

A) 0)09e - 1 
B) e0.09 × (1 / 0.09) 
C) e0.09 - 1 
D) e × (1 + 0.09) 
E) (1 + 0.09)e
<sup 
A) 0)09e - 1 
B) e0.09 × (1 / 0.09) 
C) e0.09 - 1 
D) e × (1 + 0.09) 
E) (1 + 0.09)e
<sup

Question 19

Westover Ridge has a management contract with its president that requires a lump sum payment of $15 million to be paid upon the completion of the president's first 5 years of service.The company can earn 6.5 percent on its investments and wants to set aside an equal amount of money each year over the next 5 years to fund this obligation.How much money must the firm save each year?

Accepted Answer

A) $2,895,734.60 
B) $2,698,346.17 
C) $2,401,033.67 
D) $2,634,518.06 
E) $2,848,018.22 
A) $2,895,734.60 
B) $2,698,346.17 
C) $2,401,033.67 
D) $2,634,518.06 
E) $2,848,018.22

Question 20

You are paying an effective annual rate of 18.87 percent on your credit card.The interest is compounded monthly.What is the annual percentage rate?

Accepted Answer

A) 18.50% 
B) 17.41% 
C) 17.79% 
D) 17.91% 
E) 18.31% 
A) 18.50% 
B) 17.41% 
C) 17.79% 
D) 17.91% 
E) 18.31%

The selection of an appropriate discount rate for a particular project is primarily dependent upon the project's

You expect to receive $1,800 at the end of 5 years.What is the present value of this payment if the interest rate is 7.12 percent,compounded continuously?

The Life Trust Co.purchased an investment that will pay $5,000 next year.Every year thereafter,the payment will increase by 1.25 percent.What is the value of this investment if the required rate of return is 8.3 percent?

An investment will pay $5,500 every 2 years for the next 40 years.The annual rate of interest is 12 percent.What is the value of this investment at the end of Year 40?

Assume a stated rate of interest of 8 percent.Which form of compounding will produce the highest effective rate of interest?

Which one of the following statements concerning the annual percentage rate (APR)is correct?

Aeron Electrics borrowed $160,000 for 4 years at an interest rate of 6 percent,compounded annually.The loan requires repayment of the interest annually.In addition,the principal must be repaid in equal annual payments.What is the amount of the total loan payment in Year 3?

An annuity costs $185,000 today and provides monthly payments of $950 for 40 years.The first payment occurs 1 month from today.What annual rate of return does this annuity offer?

You expect to receive $5,400 2 years from now,$6,300 3 years from now,and $10,900 6 years from now.What is the future value of these cash flows 7 years from now if the interest rate is 7.4 percent,compounded annually?

Outreach Funds established a trust that provides $150,000 in scholarships each year forever.The trust fund earns a rate of return of 4.03 percent.How much money was contributed to the fund 20 years ago,assuming that only the interest income is distributed?

Which type(s)of loan can be repaid with annuity payments?

Clint just won a prize that will pay him $15,000 a year for 15 years,starting at the end of Year 5.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

Today,the Future Trust Co.purchased an investment that will pay $6,000 at the end of 5 years.Every year thereafter,the payment will increase by 1.6 percent.What is the value of this investment today if the required rate of return is 7.4 percent?

Discounting cash flows involves

You are comparing two investments,A and B,with unequal annual cash flows and varying numbers of years.Which one of these statements is correct regarding this comparison?

Alex estimates that he will have $47,500 in student loans by the time he graduates.The interest rate is 7.2 percent,compounded monthly.If he wants to have this debt paid in full within 5 years following graduation,how much must he pay each month?

You are comparing two annuities with equal present values.The applicable discount rate is 6.65 percent,compounded annually.One annuity pays $4,500 on the first day of each year for 25 years.How much does the second annuity pay each year for 25 years if it pays at the end of each year?

The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is computed as

You are paying an effective annual rate of 18.87 percent on your credit card.The interest is compounded monthly.What is the annual percentage rate?

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters

Exam 4: Discounted Cash Flow Valuation

The selection of an appropriate discount rate for a particular project is primarily dependent upon the project's

You expect to receive $1,800 at the end of 5 years.What is the present value of this payment if the interest rate is 7.12 percent,compounded continuously?

The Life Trust Co.purchased an investment that will pay $5,000 next year.Every year thereafter,the payment will increase by 1.25 percent.What is the value of this investment if the required rate of return is 8.3 percent?

An investment will pay $5,500 every 2 years for the next 40 years.The annual rate of interest is 12 percent.What is the value of this investment at the end of Year 40?

Assume a stated rate of interest of 8 percent.Which form of compounding will produce the highest effective rate of interest?

Which one of the following statements concerning the annual percentage rate (APR)is correct?

Aeron Electrics borrowed $160,000 for 4 years at an interest rate of 6 percent,compounded annually.The loan requires repayment of the interest annually.In addition,the principal must be repaid in equal annual payments.What is the amount of the total loan payment in Year 3?

An annuity costs $185,000 today and provides monthly payments of $950 for 40 years.The first payment occurs 1 month from today.What annual rate of return does this annuity offer?

You expect to receive $5,400 2 years from now,$6,300 3 years from now,and $10,900 6 years from now.What is the future value of these cash flows 7 years from now if the interest rate is 7.4 percent,compounded annually?

Outreach Funds established a trust that provides $150,000 in scholarships each year forever.The trust fund earns a rate of return of 4.03 percent.How much money was contributed to the fund 20 years ago,assuming that only the interest income is distributed?

Which type(s)of loan can be repaid with annuity payments?

Clint just won a prize that will pay him $15,000 a year for 15 years,starting at the end of Year 5.What is the current value of this prize if the discount rate is 7 percent,compounded annually?

Today,the Future Trust Co.purchased an investment that will pay $6,000 at the end of 5 years.Every year thereafter,the payment will increase by 1.6 percent.What is the value of this investment today if the required rate of return is 7.4 percent?

Discounting cash flows involves

You are comparing two investments,A and B,with unequal annual cash flows and varying numbers of years.Which one of these statements is correct regarding this comparison?

Alex estimates that he will have $47,500 in student loans by the time he graduates.The interest rate is 7.2 percent,compounded monthly.If he wants to have this debt paid in full within 5 years following graduation,how much must he pay each month?

You are comparing two annuities with equal present values.The applicable discount rate is 6.65 percent,compounded annually.One annuity pays $4,500 on the first day of each year for 25 years.How much does the second annuity pay each year for 25 years if it pays at the end of each year?

The highest effective annual rate that can be derived from an annual percentage rate of 9 percent is computed as

You are paying an effective annual rate of 18.87 percent on your credit card.The interest is compounded monthly.What is the annual percentage rate?

Introduction to Corporate Finance

Financial Statements AMCQ Cash Flow

Financial Statements Analysis Amcq Financial Models

Interest Rates AMCQ Bomcq Valuation

Stock Valuation

Net Present Value AMCQ Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, AMCQ Capital Budgeting

Risk Amcq Return: Lessons From Market History

Return Amcq Risk: the Capital Asset Pricing Model Capm

Risk, cost of Capital, AMCQ Valuation

Efficient Capital Markets Amcq Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividemcqs AMCQ Other Payouts

Options Amcq Corporate Finance

Short-Term Finance Amcq Planning

Raising Capital

International Corporate Finance

Mergers Amcq Acquisitions Web Only

Filters