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1 | |
The present value of $115,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is: |
| | A) | $121,000 |
| | B) | $100,500 |
| | C) | $110,000 |
| | D) | $104,545 |
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2 | |
A two-year discount factor at a discount rate of 10% per year is: |
| | A) | 0.826 |
| | B) | 1.000 |
| | C) | 0.909 |
| | D) | 0.814 |
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3 | |
If the one year discount factor is 0.8333, what is the discount rate (interest rate) per year? |
| | A) | 10% |
| | B) | 20% |
| | C) | 30% |
| | D) | None of the above |
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4 | |
If the present value of $444 to be paid at the end of one year is $400, what is the one year discount factor? |
| | A) | 0.901 |
| | B) | 1.11 |
| | C) | 0.111 |
| | D) | None of the above |
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5 | |
If you invest $100,000 today at 12% interest rate for one year, what is the amount you will have at the end of the year? |
| | A) | $90,909 |
| | B) | $112,000 |
| | C) | $100,000 |
| | D) | None of the above |
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6 | |
If the present value of a cash flow generated by an initial investment of $100,000 is $120,000, what is the NPV of the project? |
| | A) | $120,000 |
| | B) | $20,000 |
| | C) | $100,000 |
| | D) | None of the above |
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7 | |
The following statements regarding the NPV rule and the rate of return rule are true except: |
| | A) | Accept a project if its NPV> 0 |
| | B) | Reject a project if its NPV< 0 |
| | C) | Accept a project if its rate of return> 0 |
| | D) | Accept a project if its rate of return> opportunity cost of capital |
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8 | |
Current price of Company X's stock is $100. The table below gives the data on end of the year prices and probabilities dependent on the state of the economy. Calculate the expected return for the stock.| Economy | Probability | End of the year price | | Growth | .5 | $130 | | Recession | .5 | $90 |
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| | A) | 10% |
| | B) | 15% |
| | C) | 20% |
| | D) | None of the above |
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9 | |
The opportunity cost of capital for a risky project is |
| | A) | The expected rate of return on a government security having the same maturity as the project |
| | B) | The expected rate of return on a well diversified portfolio of common stocks |
| | C) | The expected rate of return on a portfolio of securities of similar risks as the project |
| | D) | None of the above |
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10 | |
Mrs. Smith has $100 today and the market interest rate is 10% per year. Mr. DiCaprio also has an investment opportunity in which he can invest $50 today and receive $60 next year. Suppose Mrs. Smith consumes $50 this year and invests in the project. What is the maximum he amount he can consume next year? |
| | A) | $55 |
| | B) | $60 |
| | C) | $50 |
| | D) | None of the above |
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11 | |
Which of the following promotes the development of purely competitive financial markets? |
| | A) | High transaction costs |
| | B) | Taxes |
| | C) | A large number of traders |
| | D) | High cost of information |
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12 | |
The financial goal of a corporation is to: |
| | A) | Maximize stockholder wealth |
| | B) | Maximize profit |
| | C) | Maximize value of the corporation to the stockholders |
| | D) | None of the above |
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13 | |
The managers of a firm can maximize stockholder wealth by: |
| | A) | Taking all projects with positive NPVs |
| | B) | Taking all projects with NPVs greater than the cost of investment |
| | C) | Taking all projects with NPVs greater than present value of cash flow |
| | D) | All of the above |
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14 | |
The discount rate is used for calculating the NPV. |
| | A) | True |
| | B) | False |
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15 | |
The discount rate, hurdle rate or opportunity cost of capital all mean the same. |
| | A) | True |
| | B) | False |
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