 |
1 | |
Most investments, whether they involve real assets or financial assets, can be analyzed using the discounted cash flow approach. |
| | A) | True |
| | B) | False |
|
|
2 | |
The Rule of 72 tells us how long into the future we must wait before an investment's value is equal to three times the initial amount. |
| | A) | True |
| | B) | False |
|
|
3 | |
If you are given a present value, how long the money is to be invested, and the future value of that investment, you can solve for the interest rate that was earned on the investment. |
| | A) | True |
| | B) | False |
|
|
4 | |
Calculating the present value of a future cash flow to determine its value today is known as the discount rate. |
| | A) | True |
| | B) | False |
|
|
5 | |
Suppose you are trying to find the present value of two different cash flows using the same interest rate for each cash flow. One is $1,000 ten years from now, the other a $800 flow seven years from now. Which of the following is/are true about the discount factors used to value the cash flows? |
| | A) | The factor for the cash flow ten years away is always less than or equal to the factor for the cash flow that is received seven years from now |
| | B) | Both factors are greater than 1 |
| | C) | Regardless of the interest rate, the discount factors are such that the present value of the $1,000 will always be higher than the present value of the $800 |
| | D) | Since the payments are different, no statement can be made regarding the factors to be used |
| | E) | The astute investor will factor in the time differential and choose the payment that arrives the soonest |
|
|
6 | |
You are choosing between investments offered by two different banks. One promises a return of 10% for three years in simple interest while the other offers a return of 10% for three years in compound interest. You should |
| | A) | choose the simple interest option because both have the same basic interest rate |
| | B) | choose the compound interest option because it provides a higher return than the simple interest option |
| | C) | choose the compound interest option only if the compounding is for monthly periods |
| | D) | choose the simple interest option only if compounding occurs more than once a year |
| | E) | choose the compound interest option only if you are investing less than $5,000 |
|
|
7 | |
Given r and t greater than zero,
I. Present value interest factors are less than 1.0 II. Future value interest factors are less than 1.0
III. Present value interest factors are greater than future value interest factors IV. Present value interest factors grow as t grows, provided r is held constant |
| | A) | I only |
| | B) | I and III only |
| | C) | I and IV only |
| | D) | II and III only |
| | E) | II and IV only |
|
|
8 | |
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) | $5.89 |
| | B) | $6.34 |
| | C) | $6.70 |
| | D) | $7.00 |
| | E) | $7.04 |
|
|
9 | |
What is the future value of $25,000 received today if it is invested at 6.5% compounded annually for six years? |
| | A) | $17,133.35 |
| | B) | $27,476.42 |
| | C) | $36,478.56 |
| | D) | $39,521.75 |
| | E) | $41,374.89 |
|
|
10 | |
How much would you have to invest today at 8% compounded annually to have $25,000 to buy a trailer house in 4 years? |
| | A) | $18,267.26 |
| | B) | $18,375.75 |
| | C) | $19,147.25 |
| | D) | $21,370.10 |
| | E) | $22,149.57 |
|