Tutorial 2
Chapter 3  Financial Planning Skills
True/false and Discuss
Q1.
With the current availability of computer packages, it is now not necessary for
financial planners to explain to clients the basis on which their advice is
determined.
Q2.
The riskadjusted rate of return provided on an investment illustrates the
operation of the opportunity costs concept.
Q3.
An investment returning $800 after 5 years at a discount rate of 9% p.a. is
likely to produce a greater present value than the present value of an
investment with the same maturity value after 6 years at 6% p.a.
Q4.
It is possible for an investment to be classified as an annuity where payments
commence either at the start or end of a given period.
Q5.
For a given investment, the nominal interest rate increases with the number of
compounding periods per annum.
Q6.
For a given maturity value and nominal interest rate, an investor will be
required to make a relatively greater initial investment where there are a
relatively greater number of compounding periods per annum.
Q7.
When selecting between alternative investments, a particular investment
would generally be preferred if it provided the investor with a relatively higher
effective interest rate even if the nominal interest rate was the same for each
investment.
Q8.
The effective interest rate will always be greater than the calculated nominal
interest rate on a given investment.
Q9.
The variance is equal to the square root of the standard deviation.
Q10.
The preferred manner in establishing a client’s risk profile for a financial
adviser is via the completion of an appropriately designed client fact finder or
questionnaire.
Multiplechoice questions
Q1.
A rational response in relation to an investment involving time preference for
money issues is to prefer to receive a given sum of money earlier rather than
later because of which of the following factors:
1
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there is a greater chance that the entity promising you the
money may not fulfill the promise the longer the waiting period
2.
the earlier the money is received the earlier the ability to
reinvest and earn a rate of return on such funds
3.
the earlier the money is received the earlier the ability to use
the funds for current consumption
4.
all of the above
Q2.
The time preference for money concept is directly related to the preference of:
i.
receiving a
specified sum of money
today rather than at some future time when such choice is available
B.
receiving a specified sum of money at some future time rather than
today when such choice is available
C.
paying a specified sum of money at some future time rather than today
when such choice is available
D.
both A and C
Q3.
The greater the initial investment the:
a.
greater the future value at a given interest rate
and given number of periods
b.
lower the future value at a given interest rate and
given number of periods
c.
future value will be the same at a given interest
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 Fall '08
 Nialamnu
 Management, Time Value Of Money, Interest, Net Present Value, b. c. d.

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