Question 1

The one-year discount factor is the discount at which we can purchase money in the future, one year from now.

Accepted Answer

A) True 
 B)False

Question 2

An investment will pay you $120 in one year and $200 in two years. If the interest rate is 4%, what is the present value of these cash flows?

Accepted Answer

A) $304.91 
B) $307.69 
C) $300.29 
D) $320.00 
A) $304.91 
B) $307.69 
C) $300.29 
D) $320.00

Question 3

A U.S.-based manufacturer of sunscreen is contemplating using funds to purchase courtside advertising at major tennis matches such as the French Open and the Australian Open. Advertising at such well viewed international events will then raise the domestic sales of the manufacturers products. Which of the following factors is the most relevant when analyzing this decision?

Accepted Answer

A) the cost of the machine used to produce the sunscreen 
B) the manufacturing process of the sunscreen 
C) the cost of the existing advertising campaign 
D) the cost of the courtside advertising at the tennis matches 
A) the cost of the machine used to produce the sunscreen 
B) the manufacturing process of the sunscreen 
C) the cost of the existing advertising campaign 
D) the cost of the courtside advertising at the tennis matches

Question 4

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 5

Use the information for the question(s)below.   As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude. Assuming you currently have 10,000 bbl of WTI crude, the added benefit (cost)to you if you were to sell the 10,000 bbl of WTI crude and use the proceeds to purchase and refine ANS crude is closest to ________.

Accepted Answer

A) ($1400) 
B) $1400 
C) ($3908) 
D) $3908 
A) ($1400) 
B) $1400 
C) ($3908) 
D) $3908

Question 6

A manufacturer of breakfast cereals has the opportunity to purchase barley at $3.00 a bushel for 10,000 bushels, if it also buys 5,000 bushels of wheat at $16.00 per bushel. However, the manufacturer does not use any barley in its products, and currently needs 20,000 bushels of wheat. If the current market price of barley is $3.80 per bushel and that of wheat is $15.80 per bushel, should this opportunity be taken, and why?

Accepted Answer

A) Because the company has no need of barley, the opportunity should not be taken. 
B) Because the opportunity does not meet the company's need for wheat, the opportunity should not be taken. 
C) Because the value of the opportunity is positive, the opportunity should be taken. 
D) Because the value of the opportunity is negative, the opportunity should not be taken. 
A) Because the company has no need of barley, the opportunity should not be taken. 
B) Because the opportunity does not meet the company's need for wheat, the opportunity should not be taken. 
C) Because the value of the opportunity is positive, the opportunity should be taken. 
D) Because the value of the opportunity is negative, the opportunity should not be taken.

Question 7

How does arbitrage help the Law of One Price?

Accepted Answer

Any arbitrage opport

Question 8

Samantha has holdings of 250 troy ounces of platinum, currently valued at $820 dollars per ounce. She estimates that the price of platinum will rise to $869.20 per ounce in the next year. If the interest rate is 12%, should she sell the platinum today?

Accepted Answer

A) Yes, as the difference between the present value of selling now and selling in one year is $12,300 dollars today. 
B) Yes, as the difference between the present value of selling now and selling in one year is $10,982 dollars today. 
C) Yes, as the difference between the present value of selling now and selling in one year is $9840 dollars today. 
D) No, as the difference between the present value of selling now and selling in one year is -$8786 dollars today. 
A) Yes, as the difference between the present value of selling now and selling in one year is $12,300 dollars today. 
B) Yes, as the difference between the present value of selling now and selling in one year is $10,982 dollars today. 
C) Yes, as the difference between the present value of selling now and selling in one year is $9840 dollars today. 
D) No, as the difference between the present value of selling now and selling in one year is -$8786 dollars today.

Question 9

Sara wants to have $600,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $600,000 in 20 years?

Accepted Answer

A) $128,729 
B) $180,221 
C) $231,712 
D) $139,541 
A) $128,729 
B) $180,221 
C) $231,712 
D) $139,541

Question 10

A wholesale food retailer is offered $15.60 per two-layer carton for 5000 cartons of peaches. The wholesaler can buy peaches from their growers at $13.20 per carton. Shipping costs $2.40 per carton, for the first 1000 cartons, and $1.90 per carton for every carton over that. Will taking this opportunity increase the value of the wholesale food retailer?

Accepted Answer

A) No, the costs are $1500 more than the benefits. 
B) No, the costs and the benefits are the same. 
C) Yes, the costs are $2500 less than the benefits. 
D) Yes, the costs are $2000 less than the benefits. 
A) No, the costs are $1500 more than the benefits. 
B) No, the costs and the benefits are the same. 
C) Yes, the costs are $2500 less than the benefits. 
D) Yes, the costs are $2000 less than the benefits.

Question 11

Why are arbitrage opportunities short-lived?

Accepted Answer

A) Federal regulations will kick in to restrict trade and effectively shut the opportunity down. 
B) 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. 
C) Once investors take advantage of the opportunity, prices will respond so that the buying and selling price become equal. 
D) Arbitrage opportunities need a lot of information processing, which is very slow to arrive. 
A) Federal regulations will kick in to restrict trade and effectively shut the opportunity down. 
B) 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. 
C) Once investors take advantage of the opportunity, prices will respond so that the buying and selling price become equal. 
D) Arbitrage opportunities need a lot of information processing, which is very slow to arrive.

Question 12

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

Accepted Answer

A) using the current exchange rate 
B) using a cost-benefit analysis 
C) using the valuation principle 
D) using the current interest rate 
A) using the current exchange rate 
B) using a cost-benefit analysis 
C) using the valuation principle 
D) using the current interest rate

Question 13

If the exchange rates, after fees, in Tokyo are ¥1,000 = €6 = $9 and the exchange rates in Paris are €1 = $1.5 = ¥171, which of the following is most likely to occur?

Accepted Answer

A) a surge in conversion of dollars to yen in Tokyo 
B) a surge in conversion of euros to yen in Tokyo 
C) a surge in conversion of euros to dollars in Paris 
D) a surge in conversion of euros to yen in Paris 
A) a surge in conversion of dollars to yen in Tokyo 
B) a surge in conversion of euros to yen in Tokyo 
C) a surge in conversion of euros to dollars in Paris 
D) a surge in conversion of euros to yen in Paris

Question 14

Which of the following statements regarding the cost-benefit analysis is NOT correct?

Accepted Answer

A) The first step in evaluating a project is to identify its costs and benefits. 
B) In the absence of competitive markets, we can use one-sided prices to determine exact cash values. 
C) Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker. 
D) Because competitive markets exist for most commodities and financial assets, we can use them to determine cash values and evaluate decisions in most situations. 
A) The first step in evaluating a project is to identify its costs and benefits. 
B) In the absence of competitive markets, we can use one-sided prices to determine exact cash values. 
C) Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker. 
D) Because competitive markets exist for most commodities and financial assets, we can use them to determine cash values and evaluate decisions in most situations.

Question 15

Use the information for the question(s)below.   As an oil refiner, you are able to produce $77 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil. Because of its lower sulfur content, you can produce $78 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude. Assuming you currently have 10,000 bbl of WTI crude, the total benefits to you if you were to sell the 10,000 bbl of WTI crude and use the proceeds to purchase and refine ANS crude is closest to ________.

Accepted Answer

A) $794,274 
B) $780,000 
C) $781,550 
D) $784,091 
A) $794,274 
B) $780,000 
C) $781,550 
D) $784,091

Question 16

A company decides to close down its plastics division. It has on hand 20 tons of styrene monomer, a raw material that has a market price of $800 per ton, which had been originally purchased at $750 per ton. Given that the company has no use for the styrene monomer, and that it would cost the company $5200 to store it, what is the total value of the 20 tons of styrene monomer to the company?

Accepted Answer

A) -$5200 
B) $0 
C) $15,000 
D) $16,000 
A) -$5200 
B) $0 
C) $15,000 
D) $16,000

Question 17

If the one-year discount factor is equal to 0.94340, the interest must be equal to ________,

Accepted Answer

A) 3.0% 
B) 4.8% 
C) 5.5% 
D) 6.0% 
A) 3.0% 
B) 4.8% 
C) 5.5% 
D) 6.0%

Question 18

You own 1000 shares of Newstar Financial stock, currently trading for $57 per share. You are offered a deal where you can exchange these stocks for 900 shares of Amback Financial Group stock, currently trading at $63 per share. What is the value of this trade, if you choose to make it?

Accepted Answer

A) -$320 
B) -$340 
C) -$300 
D) $300 
A) -$320 
B) -$340 
C) -$300 
D) $300

Question 19

What is the future value (FV)of $20,000 in four years, assuming the interest rate is 4% per year?

Accepted Answer

A) $15,208.16 
B) $19,887.59 
C) $23,397.17 
D) $25,736.89 
A) $15,208.16 
B) $19,887.59 
C) $23,397.17 
D) $25,736.89

Question 20

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

Accepted Answer

A) True 
 B)False

The one-year discount factor is the discount at which we can purchase money in the future, one year from now.

An investment will pay you $120 in one year and $200 in two years. If the interest rate is 4%, what is the present value of these cash flows?

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

How does arbitrage help the Law of One Price?

Samantha has holdings of 250 troy ounces of platinum, currently valued at $820 dollars per ounce. She estimates that the price of platinum will rise to $869.20 per ounce in the next year. If the interest rate is 12%, should she sell the platinum today?

Sara wants to have $600,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $600,000 in 20 years?

Why are arbitrage opportunities short-lived?

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

If the exchange rates, after fees, in Tokyo are ¥1,000 = €6 = $9 and the exchange rates in Paris are €1 = $1.5 = ¥171, which of the following is most likely to occur?

Which of the following statements regarding the cost-benefit analysis is NOT correct?

If the one-year discount factor is equal to 0.94340, the interest must be equal to ________,

You own 1000 shares of Newstar Financial stock, currently trading for $57 per share. You are offered a deal where you can exchange these stocks for 900 shares of Amback Financial Group stock, currently trading at $63 per share. What is the value of this trade, if you choose to make it?

What is the future value (FV)of $20,000 in four years, assuming the interest rate is 4% per year?

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

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 3: Time Value of Money: an Introduction

The one-year discount factor is the discount at which we can purchase money in the future, one year from now.

An investment will pay you $120 in one year and $200 in two years. If the interest rate is 4%, what is the present value of these cash flows?

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

How does arbitrage help the Law of One Price?

Samantha has holdings of 250 troy ounces of platinum, currently valued at $820 dollars per ounce. She estimates that the price of platinum will rise to $869.20 per ounce in the next year. If the interest rate is 12%, should she sell the platinum today?

Sara wants to have $600,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $600,000 in 20 years?

Why are arbitrage opportunities short-lived?

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

If the exchange rates, after fees, in Tokyo are ¥1,000 = €6 = $9 and the exchange rates in Paris are €1 = $1.5 = ¥171, which of the following is most likely to occur?

Which of the following statements regarding the cost-benefit analysis is NOT correct?

If the one-year discount factor is equal to 0.94340, the interest must be equal to ________,

You own 1000 shares of Newstar Financial stock, currently trading for $57 per share. You are offered a deal where you can exchange these stocks for 900 shares of Amback Financial Group stock, currently trading at $63 per share. What is the value of this trade, if you choose to make it?

What is the future value (FV)of $20,000 in four years, assuming the interest rate is 4% per year?

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

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters