Question 1

What is the present value (PV) of $50,000 received twenty years from now, assuming the interest rate is 6% per year?

Accepted Answer

A)  $32,500.00 
B)  $13,251.70 
C)  $15,590.24 
D)  $27,282.92 
A)  $32,500.00 
B)  $13,251.70 
C)  $15,590.24 
D)  $27,282.92

Question 2

In a trade with the government of an oil producing nation, a manufacturer will deliver 13 Caterpillar D9 tractors, with a value of $320,000 per tractor, and receive 45,000 barrels of oil, valued at $120 per barrel. What is the net benefit of this trade to the manufacturer?

Accepted Answer

A)  $744,000 
B)  $1,240,000 
C)  $992,000 
D)  $1,488,000 
A)  $744,000 
B)  $1,240,000 
C)  $992,000 
D)  $1,488,000

Question 3

What is one of the prerequisite conditions for the Valuation Principle to work?

Accepted Answer

The availability of competitiv

Question 4

If the rate of interest (r) is 8%, then you should be indifferent about receiving $500.00 today or ________.

Accepted Answer

A)  $462.96 in one year 
B)  $500.00 in one year 
C)  $540.00 in one year 
D)  None of the above 
A)  $462.96 in one year 
B)  $500.00 in one year 
C)  $540.00 in one year 
D)  None of the above

Question 5

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors.

Accepted Answer

A) True 
 B)False

Question 6

What is the present value (PV) of $100,000 received six years from now, assuming the interest rate is 8% per year?

Accepted Answer

A)  $60,000.00 
B)  $63,016.96 
C)  $78,771.20 
D)  $110,279.68 
A)  $60,000.00 
B)  $63,016.96 
C)  $78,771.20 
D)  $110,279.68

Question 7

Advanced Micro Devices (NYSE: AMD) is currently trading at $20.75 on the NYSE. Advanced Micro Devices is also listed on NASDAQ. 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?

Accepted Answer

Yes, buy 1,000 share

Question 8

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 9

Use the information for the question(s) below.
   Coloma Cooper Incorporated is able to produce $640 worth of copper from one ton of low-grade copper ore. Because of its higher copper content, Coloma can produce $940 worth of copper from one ton of high-grade copper ore.
-A mining company is offering to trade 7,250 tons of low-grade copper ore for 5,000 tons of high-grade copper ore. Assuming Coloma currently has 5,000 tons of high-grade ore, what should it do?

Accepted Answer

Coloma should not trade. It should keep

Question 10

What is the future value (FV) of $50,000 in thirty years, assuming the interest rate is 6% per year?

Accepted Answer

A)  $32,500.00 
B)  $244,098.38 
C)  $258,457.10 
D)  $287,174.56 
A)  $32,500.00 
B)  $244,098.38 
C)  $258,457.10 
D)  $287,174.56

Question 11

Which of the following statements is FALSE about valuing cash at different points in time?

Accepted Answer

A)  The process of moving forward along the timeline to determine a cash flow's value in the future is known as compounding. 
B)  The effect of earning interest on interest is known as compound interest. 
C)  It is only possible to compare or combine values at the same point in time. 
D)  A dollar in the future is worth more than a dollar today. 
A)  The process of moving forward along the timeline to determine a cash flow's value in the future is known as compounding. 
B)  The effect of earning interest on interest is known as compound interest. 
C)  It is only possible to compare or combine values at the same point in time. 
D)  A dollar in the future is worth more than a dollar today.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Refer to the table above. An international seafood supplier is offered 9.52 million yen today for 1000 pounds of abalone frozen in the shell. One thousand pounds of abalone can be sourced from various countries at the prices shown above. The current market exchange rates between the United States and the other relevant currencies are also shown. In addition,  
What is the value, in U.S. dollars, of the best deal the international seafood supplier can make?

Accepted Answer

A)  $12,333 
B)  $14,333 
C)  $14,833 
D)  $13,333 
A)  $12,333 
B)  $14,333 
C)  $14,833 
D)  $13,333

Question 14

Which of the following best describes the valuation principle?

Accepted Answer

A)  It is not possible to compare costs and benefits that occur at different points in time, in different currencies, or with different risks. 
B)  The value of a commodity or an asset to a firm or its investors is determined by its competitive market price. When the value of the benefits exceeds the value of the costs in terms of market prices, the decision will increase the market value of the firm. 
C)  The rate at which we can exchange money today for money in the future by borrowing or investing is the current market interest rate and is same across all banks. 
D)  If equivalent goods or securities trade simultaneously in different markets across the world, they will trade for the same price. 
A)  It is not possible to compare costs and benefits that occur at different points in time, in different currencies, or with different risks. 
B)  The value of a commodity or an asset to a firm or its investors is determined by its competitive market price. When the value of the benefits exceeds the value of the costs in terms of market prices, the decision will increase the market value of the firm. 
C)  The rate at which we can exchange money today for money in the future by borrowing or investing is the current market interest rate and is same across all banks. 
D)  If equivalent goods or securities trade simultaneously in different markets across the world, they will trade for the same price.

Question 15

Whose cash flow is best described by the timeline shown below?

Accepted Answer

A)  Joe, who puts down $3,500 to buy a car, and then makes annual payments of $1,000 
B)  Harry, who borrows $3,500, and then receives an annual payment of $1,000 
C)  Karen, who loans a friend $3,500, which friend then pays back the loan in four annual installments of $1,000 
D)  Leo, who borrows $3,500, and then pays back the loan in four annual payments of $1,000 
A)  Joe, who puts down $3,500 to buy a car, and then makes annual payments of $1,000 
B)  Harry, who borrows $3,500, and then receives an annual payment of $1,000 
C)  Karen, who loans a friend $3,500, which friend then pays back the loan in four annual installments of $1,000 
D)  Leo, who borrows $3,500, and then pays back the loan in four annual payments of $1,000

Question 16

Is there a need to distinguish between cash inflows and outflows on a timeline?

Accepted Answer

Cash inflows and outflows should have op

Question 17

If $432 invested today yields $450 in a year's time, what is the discount factor?

Accepted Answer

A)  0.10 
B)  0.96 
C)  1.96 
D)  1.92 
A)  0.10 
B)  0.96 
C)  1.96 
D)  1.92

Question 18

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 19

You see on Craigslist that a used XBOX 360 sells for $100 and a new XBOX 360 sells for $300. Is this an arbitrage opportunity?

Accepted Answer

A)  No, because the market fora used XBOX 360 is not the same as the market for a new XBOX 360. 
B)  No, because the market for a used XBOX 360 is a competitive market. 
C)  Yes, because the market for a used XBOX 360 is a competitive market. 
D)  Yes, because the market for a used XBOX 360 is not the same as the market for a new XBOX 360. 
A)  No, because the market fora used XBOX 360 is not the same as the market for a new XBOX 360. 
B)  No, because the market for a used XBOX 360 is a competitive market. 
C)  Yes, because the market for a used XBOX 360 is a competitive market. 
D)  Yes, because the market for a used XBOX 360 is not the same as the market for a new XBOX 360.

Question 20

Consider the following timeline:   If the current market rate of interest is 13%, then the value of the cash flows in year 0 and year 2 as of year 1 is closest to ________.

Accepted Answer

A)  $167.35 
B)  -$98.7 
C)  $98.7 
D)  -$70 
A)  $167.35 
B)  -$98.7 
C)  $98.7 
D)  -$70

Exam 3: Time Value of Money: an Introduction

What is the present value (PV) of $50,000 received twenty years from now, assuming the interest rate is 6% per year?

In a trade with the government of an oil producing nation, a manufacturer will deliver 13 Caterpillar D9 tractors, with a value of $320,000 per tractor, and receive 45,000 barrels of oil, valued at $120 per barrel. What is the net benefit of this trade to the manufacturer?

What is one of the prerequisite conditions for the Valuation Principle to work?

If the rate of interest (r) is 8%, then you should be indifferent about receiving $500.00 today or ________.

In general, if an action increases a firm's value by providing benefits with a value greater than any costs involved, then that action is good for the firm's investors.

What is the present value (PV) of $100,000 received six years from now, assuming the interest rate is 8% per year?

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

What is the future value (FV) of $50,000 in thirty years, assuming the interest rate is 6% per year?

Which of the following statements is FALSE about valuing cash at different points in time?

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

Which of the following best describes the valuation principle?

Whose cash flow is best described by the timeline shown below?

Is there a need to distinguish between cash inflows and outflows on a timeline?

If $432 invested today yields $450 in a year's time, what is the discount factor?

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?

You see on Craigslist that a used XBOX 360 sells for $100 and a new XBOX 360 sells for $300. Is this an arbitrage opportunity?

Consider the following timeline: If the current market rate of interest is 13%, then the value of the cash flows in year 0 and year 2 as of year 1 is closest to ________.

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

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