Question 1

The net present value of a project is the difference between:

Accepted Answer

A) current benefits and the present value of future costs. 
B) the present value of current benefits and the current value of future costs. 
C) the present value of future benefits and the present value of future costs. 
D) the present value of current and future benefits and the present value of current and future costs. 
A) current benefits and the present value of future costs. 
B) the present value of current benefits and the current value of future costs. 
C) the present value of future benefits and the present value of future costs. 
D) the present value of current and future benefits and the present value of current and future costs.

Question 2

Other things equal, the _____ the loan period, the _____ the present value.

Accepted Answer

A) shorter; lower 
B) longer; higher 
C) longer; lower 
D) shorter; more variable 
A) shorter; lower 
B) longer; higher 
C) longer; lower 
D) shorter; more variable

Question 3

You have recently graduated from high school and are debating whether to attend college or get a job. Assume that you can spend a certain amount today for tuition and receive your college degree in only one year. When you graduate, you will receive a job that pays you $100,000 immediately and $100,000 the following year. If you begin working immediately, you can earn $35,000 today and each of the next two years. If the interest rate is 10%, solve for the amount of tuition that would make you indifferent between going to college and working immediately.

Accepted Answer

For each of these two options, compute t

Question 4

The net present value (NPV) of an activity or project is equal to the _____ value of all of the revenues minus the _____ value of all of the costs associated with it.

Accepted Answer

A) future; present 
B) present; present 
C) present; future 
D) future; future 
A) future; present 
B) present; present 
C) present; future 
D) future; future

Question 5

You win a prize at your sorority, and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is:

Accepted Answer

A) $173.56. 
B) $190.91. 
C) $182.65. 
D) $181.80. 
A) $173.56. 
B) $190.91. 
C) $182.65. 
D) $181.80.

Question 6

The present value (PV) of a payment n years in the future (FV), given an interest rate (r), is given by the equation:

Accepted Answer

A) PV = FVn. 
B) PV = 1 / FVn. 
C) PV = FV / (1 + r). 
D) PV = FV / (1 + r)n. 
A) PV = FVn. 
B) PV = 1 / FVn. 
C) PV = FV / (1 + r). 
D) PV = FV / (1 + r)n.

Question 7

The present value (PV) of a payment one year in the future (FV), given an interest rate (r), is given by the equation:

Accepted Answer

A) PV = 1 / FV. 
B) PV = FV / 1. 
C) PV = FV / (1 + r). 
D) PV = FV × (1 + r). 
A) PV = 1 / FV. 
B) PV = FV / 1. 
C) PV = FV / (1 + r). 
D) PV = FV × (1 + r).

Question 8

The present value of a future payment will be smaller the:

Accepted Answer

A) sooner the payment is due. 
B) lower the interest rate. 
C) higher the interest rate. 
D) higher the interest rate and the later the payment is due. 
A) sooner the payment is due. 
B) lower the interest rate. 
C) higher the interest rate. 
D) higher the interest rate and the later the payment is due.

Question 9

You win a prize at your sorority and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 5%, the present value of option 1 is:

Accepted Answer

A) $176.56. 
B) $185.94. 
C) $190.48. 
D) $195.24. 
A) $176.56. 
B) $185.94. 
C) $190.48. 
D) $195.24.

Question 10

To finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years?

Accepted Answer

A) $10,000(1 + 0.05) 
B) $10,000(1 + 5) 
C) $10,000(1 + 0.05)8 
D) $10,000(1 + 0.5)8 
A) $10,000(1 + 0.05) 
B) $10,000(1 + 5) 
C) $10,000(1 + 0.05)8 
D) $10,000(1 + 0.5)8

Question 11

You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose:

Accepted Answer

A) $10 million after 10 years, since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%. 
B) $10 million after 10 years, since that is a larger amount than the present value of $5 million paid after 10 years. 
C) $5 million today, since it would be worth more than $10 million after 10 years if the $5 million earned interest at the rate of 10% per year. 
D) $10 million after 10 years, since it is the larger amount. 
A) $10 million after 10 years, since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%. 
B) $10 million after 10 years, since that is a larger amount than the present value of $5 million paid after 10 years. 
C) $5 million today, since it would be worth more than $10 million after 10 years if the $5 million earned interest at the rate of 10% per year. 
D) $10 million after 10 years, since it is the larger amount.

Question 12

Suppose the university offers the following payment plan: Either you pay $80,000 when enrolling as a freshman or you pay $25,000 at the beginning of your freshman year and $25,000 at the beginning of every year for the next three years. If the annual interest rate is 5%, then you should take option 1 and pay $80,000 at the beginning of your first year.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is TRUE?

Accepted Answer

A) People generally prefer to receive money later rather than sooner. 
B) Interest is a payment made by lenders to borrowers. 
C) The present value of a future payment will be lower the smaller the payment, the later it is due, and the higher the interest rate. 
D) The future value of a payment will be more if the interest rate is lower. 
A) People generally prefer to receive money later rather than sooner. 
B) Interest is a payment made by lenders to borrowers. 
C) The present value of a future payment will be lower the smaller the payment, the later it is due, and the higher the interest rate. 
D) The future value of a payment will be more if the interest rate is lower.

Question 14

If a firm finds that the net present value of a project is _____ for a given interest rate, it will _____ the project.

Accepted Answer

A) positive; undertake 
B) positive; not undertake 
C) negative; undertake 
D) positive or negative; undertake 
A) positive; undertake 
B) positive; not undertake 
C) negative; undertake 
D) positive or negative; undertake

Question 15

If a firm considering the purchase of an asset determines that the asset's net present value is greater than zero, then _____ the asset will _____ profits.

Accepted Answer

A) not buying; increase 
B) purchasing; increase 
C) purchasing; decrease 
D) not buying; decrease 
A) not buying; increase 
B) purchasing; increase 
C) purchasing; decrease 
D) not buying; decrease

Question 16

The present value of a future payment decreases if the:

Accepted Answer

A) period between the present and the future increases. 
B) future payment increases. 
C) interest rate decreases. 
D) stock market rises. 
A) period between the present and the future increases. 
B) future payment increases. 
C) interest rate decreases. 
D) stock market rises.

The net present value of a project is the difference between:

Other things equal, the _ the loan period, the _ the present value.

The net present value (NPV) of an activity or project is equal to the _ value of all of the revenues minus the _ value of all of the costs associated with it.

You win a prize at your sorority, and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is:

The present value (PV) of a payment n years in the future (FV), given an interest rate (r), is given by the equation:

The present value (PV) of a payment one year in the future (FV), given an interest rate (r), is given by the equation:

The present value of a future payment will be smaller the:

You win a prize at your sorority and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 5%, the present value of option 1 is:

To finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years?

You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose:

Which of the following statements is TRUE?

If a firm finds that the net present value of a project is _ for a given interest rate, it will _ the project.

If a firm considering the purchase of an asset determines that the asset's net present value is greater than zero, then _ the asset will _ profits.

The present value of a future payment decreases if the:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

Filters

Exam 21: toward a Fuller Understanding of Present Value

The net present value of a project is the difference between:

Other things equal, the _____ the loan period, the _____ the present value.

The net present value (NPV) of an activity or project is equal to the _____ value of all of the revenues minus the _____ value of all of the costs associated with it.

You win a prize at your sorority, and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 10%, the present value of option 1 is:

The present value (PV) of a payment n years in the future (FV), given an interest rate (r), is given by the equation:

The present value (PV) of a payment one year in the future (FV), given an interest rate (r), is given by the equation:

The present value of a future payment will be smaller the:

You win a prize at your sorority and you are given the following two payoff options: Option 1 is to receive $100 one year from today and $100 two years from today. Option 2 is to receive $180 today. If the annual interest rate is 5%, the present value of option 1 is:

To finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years?

You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose:

Which of the following statements is TRUE?

If a firm finds that the net present value of a project is _____ for a given interest rate, it will _____ the project.

If a firm considering the purchase of an asset determines that the asset's net present value is greater than zero, then _____ the asset will _____ profits.

The present value of a future payment decreases if the:

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Savings, Investment Spending, and the Financial System

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

Filters

Other things equal, the _ the loan period, the _ the present value.

The net present value (NPV) of an activity or project is equal to the _ value of all of the revenues minus the _ value of all of the costs associated with it.

If a firm finds that the net present value of a project is _ for a given interest rate, it will _ the project.

If a firm considering the purchase of an asset determines that the asset's net present value is greater than zero, then _ the asset will _ profits.