Student Centre | Instructor Centre | Information Centre | Home

Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Introduction to Valuation: The Time Value of Money

Quick Quiz 2

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	Which of the following is/are accurate? All else equal I. present values increase as the discount rate increases II. present values increase the further away in time the future value III. present values are always smaller than future values when both r and t are positive
		A)	I only
		B)	II only
		C)	III only
		D)	I and II only
		E)	II and III only


2	Suppose you are trying to find the present value of two different cash flows using the same interest rate for each. One cash flow is $1,000 ten years from now, the other $800 seven years from now. Which of the following is true about the discount factors used in these valuations?
		A)	Both discount factors are greater than one.
		B)	The discount factor for the cash flow ten years away is always less than or equal to the discount factor for the cash flow that is received seven years from now.
		C)	Regardless of the interest rate, the discount factors are such that the present value of the $1,000 will always be greater than the present value of the $800.
		D)	Since the payments are different, no statement can be made regarding the discount factors.
		E)	You should factor in the time differential and choose the payment that arrives the soonest.


3	You received a $1 savings account earning 5% on your 1st birthday. How much will you have in the account on your 40th birthday if you don't withdraw any money before then?
		A)	$6.70
		B)	$6.34
		C)	$5.89
		D)	$7.04
		E)	$7.00


4	How much would you have to invest today at 8% compounded annually to have $25,000 to buy a car four years from now?
		A)	$18,267.26
		B)	$18,375.75
		C)	$19,147.25
		D)	$21,370.10
		E)	$22,149.57


5	Granny puts $35,000 into a bank account earning 4.0%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account?
		A)	20 years
		B)	19 years
		C)	18 years
		D)	17 years
		E)	16 years


6	Many economists view a 3% annual inflation rate as "acceptable." Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you 5 years from now, if today's price is $38,000?
		A)	$44,052
		B)	$41,813
		C)	$40,575
		D)	$36,110
		E)	$32,779


7	All County Insurance, Inc. promises to pay Ted $1 million on his 65th birthday in return for a one-time payment of $75,000 today. (Ted just turned 25.) At what rate of interest would Ted be indifferent between accepting the company's offer and investing the premium on his own?
		A)	2.4%
		B)	5.5%
		C)	6.1%
		D)	6.7%
		E)	7.2%


8	You have $500 in an account which pays 5% compound interest. How much additional interest (in dollars) would you earn over 4 years if you moved the money to an account earning 6%?
		A)	$29.94
		B)	$25.88
		C)	$24.93
		D)	$23.49
		E)	$21.89


9	An account was opened with an investment of $1,000 10 years ago. The ending balance in the account is $1,500. If interest was compounded annually, what rate was earned on the account?
		A)	4.1%
		B)	3.8%
		C)	2.9%
		D)	2.2%
		E)	1.0%


10	An account was opened with $1,000 three years ago. Today, the account balance is $1,157.63. If the account earns a fixed annual interest rate, how long will it take until the account has earned a total of $225 in simple interest?
		A)	Less than one more year
		B)	Between four and five more years
		C)	Between two and three more years
		D)	Between three and four more years
		E)	Between one and two more years

2002 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.