University of Texas

FIN 3014

1)The present value of $100 expected two years from today at a discount rate of 6 percent is

2.Present value is defined as

3.If the annual interest rate is 12 percent, what is the two-year discount factor?

4.

If the present value of cash flow X is $240 and the present value of cash flow Y is $160, then the present value of the combined cash flows is

5.

The rate of return is also called the discount rate only.

6.

The present value of $121,000 expected one year from today at an interest rate (discount rate) of 10 percent per year is

7.

The one-year discount factor, at a discount rate of 25 percent per year, is 1.25.

8.The one-year discount factor, at an interest rate of 100 percent per year, is 1.50.

9.

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is

10.

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year? 10 percent

11.

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?

12.

If the present value of $250 expected one year from today is $200, what is the one-year discount rate?

13.

If the one-year discount factor is 0.90, what is the present value of $120 expected one year from today?

14.

If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?

15.The present value formula for a cash flow expected one period from now is PV = C1× (1 + r).

16.The net present value formula for one period is

17.

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000. What is the NPV of the project at a discount rate of 20 percent?

18.

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?

19.

20.

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer?

21.

22.

23.

24.

Which of the following statements regarding the NPV rule and the rate of return rule is false? Accept a project if its NPV > 0.

25.

An initial investment of $500 produces a cash flow of $550 one year from today. Calculate the rate of return on the project.

26.

According to the net present value rule, an investment in a project should be made if the net present value is greater than the cost of investment.

27.

Which of the following statements regarding the net present value rule and the rate of return rule is false?

28.

The opportunity cost of capital for a risky project is

29.

A perpetuity is defined as a sequence of

30.

Which of the following is generally considered an example of a perpetuity? Interest payments on a 10-year bond

31.

You would like to have enough money saved after your retirement such that you and your heirs can receive $100,000 per year in perpetuity. How much would you need to have saved at the time of your retirement in order to achieve this goal? (Assume that the perpetuity payments start one year after the date of your retirement. The annual interest rate is 12.5 percent.)

32.

What is the present value of $10,000 per year in perpetuity at an annual interest rate of 10 percent? Assume the perpetuity starts in one year.

33.

You would like to have enough money saved to receive $80,000 per year in perpetuity after retirement for you and your heirs. How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start one year from the date of your retirement. The annual interest rate is 8 percent.)

34.

You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement. How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start on the day of your retirement. The annual interest rate is 8 percent.)

35.

You would like to have enough money saved to receive an $80,000 per year perpetuity after retirement. How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start on the day of your retirement. The annual interest rate is 10 percent.)

36.

An annuity is defined as a set of

37.

If you are paid $1,000 at the end of each year for the next five years, what type of cash flow did you receive?

38.

If the three-year present value annuity factor is 2.673 and the two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the three years?

39.

If the five-year present value annuity factor is 3.60478 and the four-year present value annuity factor is 3.03735, what is the present value of the $1 received at the end of five years?

40.

What is the eight-year present value annuity factor at a discount rate of 11 percent?

41.

What is the six-year present value annuity factor at an interest rate of 9 percent?

42.

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12 percent?

43.

What is the present value of a six-year $5,000 per year annuity at a discount rate of 10 percent?

44.

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in your retirement account to receive this income, if the annual interest rate is 9 percent per year? (Assume that the payments start on the day of your retirement.)

45.

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in your retirement account to receive this income if the annual interest rate is 9 percent per year? (Assume that the payments start one year after your retirement.)

47.

If the present value annuity factor for 10 years at 10 percent interest rate is 6.1446, what is the present value annuity factor for an equivalent annuity due?

48.

If the present value annuity factor is 3.8896, what is the present value annuity factor for an equivalent annuity due if the interest rate is 9 percent?

49.

For $10,000, you can purchase a five-year annuity that will pay $2,358.65 per year for five years. The payments occur at the beginning of each year. Calculate the effective annual interest rate implied by this arrangement.

50.

John House has taken a $250,000 mortgage on his house at an interest rate of 6 percent per year. If the mortgage calls for 20 equal annual payments, what is the amount of each payment?

51.

John House has taken a 20-year $250,000 mortgage on his house at an interest rate of 6 percent per year. What is the remaining balance (or value) of the mortgage after the payment of the fifth annual installment?

52.

If the present value of $1 received n years from today at an interest rate of r is 0.3855, then what is the future value of $1 invested today at an interest rate of r percent for n years?

53.

If the present value of $1 received n years from today at an interest rate of r is 0.621, then what is the future value of $1 invested today at an interest rate of r% for n years?

54.

If the future value of $1 invested today at an interest rate of r percent for n years is 9.6463, what is the present value of $1 to be received in n years at r percent interest rate?

55.

If the future value annuity factor at 10 percent and five years is 6.1051, calculate the equivalent present value annuity factor.

56.

If the present value annuity factor at 10 percent for 10 years is 6.1446, what is the equivalent future value annuity factor?

57.

If the present value annuity factor at 12 percent for five years is 3.6048, what is the equivalent future value annuity factor?

58.

If the present value annuity factor at 8 percent for 10 years is 6.71, what is the equivalent future value annuity factor?

59.

You are considering investing in a retirement fund that requires you to deposit $5,000 per year, and you want to know how much the fund will be worth when you retire. What financial technique should you use to calculate this value?

60.

Mr. Hopper expects to retire in 25 years, and he wishes to accumulate $750,000 in his retirement fund by that time. If the interest rate is 10 percent per year, how much should Mr. Hopper put into his retirement fund each year in order to achieve this goal? (Assume that he makes payments at the end of each year.)

61.

Mr. Hopper expects to retire in 30 years, and he wishes to accumulate $1,000,000 in his retirement fund by that time. If the interest rate is 12 percent per year, how much should Mr. Hopper put into his retirement fund at the end of each year in order to achieve this goal?

62.

You would like to have enough money saved to receive a growing annuity for 20 years, growing at a rate of 5 percent per year, with the first payment of $50,000 occurring exactly one year after retirement. How much would you need to save in your retirement fund to achieve this goal? The interest rate is 10 percent.

63.

You would like to have enough money saved to receive a growing annuity for 25 years, growing at a rate of 4 percent per year, with the first payment of $60,000 occurring exactly one year after retirement. How much would you need to save in your retirement fund to achieve this goal? The interest rate is 12 percent.

64.

The managers of a firm can maximize stockholder wealth by

65.

If you invest $100 at 12 percent for three years, how much would you have at the end of three years using compound interest?

66.

Which of the following statements is true?

67.

The concept of compound interest is best described as interest earned on an investment.

68.

Ms. Colonial has just taken out a $150,000 mortgage at an interest rate of 6 percent per year. If the mortgage calls for equal monthly payments for 20 years, what is the amount of each payment? (Assume monthly compounding or discounting.)

69.

An investment having a 10.47 percent effective annual rate (EAR) has what APR? (Assume monthly compounding.)

70.

An investment at 12 percent APR compounded monthly is equal to an effective annual rate of

.

71.

Mr. Williams expects to retire in 30 years and would like to accumulate $1 million in his pension fund. If the annual interest rate is 12 percent, how much should Mr. Williams put into his pension fund each month in order to achieve his goal? (Assume that Mr. Williams will deposit the same amount each month into his pension fund, using monthly compounding.)

72.

An investment at 10 percent compounded continuously has an equivalent annual rate of