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| 1 | |
Present Value is defined as: |
| | A) | Future cash flows discounted to the present at an appropriate discount rate |
| | B) | Inverse of future cash flows |
| | C) | Present cash flow compounded into the future |
| | D) | None of the above |
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| 2 | |
If the interest rate is 15%, what is the two-year discount factor? |
| | A) | 0.7561 |
| | B) | 0.8697 |
| | C) | 1.3225 |
| | D) | 0.658 |
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| 3 | |
An annuity is defined as |
| | A) | An asset that pays a fixed sum each year forever |
| | B) | An asset that pays a fixed sum each year for a specified number of years |
| | C) | An asset that pays either a fixed or unequal sum for a specified number of years |
| | D) | None of the above |
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| 4 | |
If the present value of the cash flow X is $200, and the present value cash flow Y $150, then the present value of the combined cash flow is: |
| | A) | $200 |
| | B) | $150 |
| | C) | $50 |
| | D) | $350 |
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| 5 | |
What is the net present value of the following cash flow at a discount rate of 15%? | t=0 | t=1 | t=2 | | –120,000 | –100,000 | 300,000 |
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| | A) | $19,887 |
| | B) | $80,000 |
| | C) | $26,300 |
| | D) | None of the above |
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| 6 | |
You are a charitable organization that plans to provide $100,000 per year in perpetuity to needy children. How much would a donor need to provide today to fund this goal? Assume that the first payment out of the charitable organization will start one year from today. The interest rate is 10%. |
| | A) | $1,000,000 |
| | B) | $10,000,000 |
| | C) | $100,000 |
| | D) | None of the above |
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| 7 | |
What is the present value annuity due factor of $1 at a discount rate of 15% for 15 years? |
| | A) | 5.8474 |
| | B) | 8.5143 |
| | C) | 7.1324 |
| | D) | 6.7245 |
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| 8 | |
If the present value of $1 received n years from today at an interest rate of r is 0.270, then what is the future value of $1.00 invested today at an interest rate of r for n years? |
| | A) | $1.00 |
| | B) | $3.70 |
| | C) | $1.70 |
| | D) | $3.95 |
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| 9 | |
Find the present value of a perpetuity that pays $3.40 one year from now and is growing at a constant rate of 3%. The discount rate is 14%. |
| | A) | $3.40 |
| | B) | $24.29 |
| | C) | $30.91 |
| | D) | $113.33 |
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| 10 | |
Mr. Hopper is expected to retire in 28 years and he wishes to accumulate $750,000 in his retirement fund by that time. If the interest rate is 10% per year, how much should Mr. Hopper put into the retirement fund at the end of each year in order to achieve this goal? |
| | A) | $4,559.44 |
| | B) | $5,588.26 |
| | C) | $9,118.88 |
| | D) | $10,018.67 |
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| 11 | |
John House has taken a $150,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for 30 equal annual payments, what is the amount of each payment? |
| | A) | $14,158.94 |
| | B) | $10,897.34 |
| | C) | $16,882.43 |
| | D) | $17,657.35 |
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| 12 | |
The concept of compound interest refers to: |
| | A) | Earning interest on the principal |
| | B) | Earning interest on previously earned interest |
| | C) | Investing for a number of years |
| | D) | None of the above |
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| 13 | |
If you invest $100 at 13% for three years, how much would you have at the end of 3 years? |
| | A) | $139.00 |
| | B) | $144.28 |
| | C) | $240.18 |
| | D) | $292.12 |
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| 14 | |
An investment at 12% nominal rate compounded monthly is equal to an annual rate of: |
| | A) | 12.68% |
| | B) | 12.36% |
| | C) | 12% |
| | D) | None of the above |
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| 15 | |
An investment pays $60 per year for five years plus a final payment (in year 5) of $1,000. How much would you be willing to pay for this investment opportunity? The interest rate is 8%. |
| | A) | $1,060 |
| | B) | $1,000 |
| | C) | $784 |
| | D) | $920 |
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| 16 | |
What is the present value of a perpetuity that pays $10 per year if the interest rate is 14%? |
| | A) | $10.00 |
| | B) | $14.00 |
| | C) | $65.76 |
| | D) | $71.43 |
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| 17 | |
A bank offers the following investments. Which do you prefer? |
| | A) | A stated rate of 10% continuously compounded |
| | B) | A stated rate of 10% compounded annually |
| | C) | A stated rate of 10% compounded semi-annually |
| | D) | A rate of 10% simple interest |
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| 18 | |
You invest $1,000 at a continuously compounded rate of 10%. What is the investment worth after 3 years? |
| | A) | $1,100.00 |
| | B) | $1,349.86 |
| | C) | $1,331.00 |
| | D) | $1,105.17 |
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| 19 | |
A machine costs $150,000 to buy. It will generate cash flows to the business of $100,000 in Year 1 and $90,000 in Year 2. If the appropriate discount rate is 12%, what is the net present value? |
| | A) | $311,033 |
| | B) | $40,000 |
| | C) | $15,289 |
| | D) | $11,033 |
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| 20 | |
Your credit card charges interest of 1.5% per month. The company will quote you an APR of what? |
| | A) | 1.5% |
| | B) | 12% |
| | C) | 18% |
| | D) | None of the above. |
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| 21 | |
What is the monthly mortgage payment on a $150,000 mortgage for 30 years if the APR is 5.85%? |
| | A) | $784.71 |
| | B) | $805.65 |
| | C) | $884.91 |
| | D) | $925.64 |
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| 22 | |
The present value of a $2.50 dividend received at the end of this year that grows at 4% forever given a cost of capital of 12% is worth how much today? |
| | A) | $20.83 |
| | B) | $62.50 |
| | C) | $54.23 |
| | D) | $31.25 |
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