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Unformatted text preview: Econ 333 - Financial Economics Spring 08 Practice Prelim I: Answer key Exercise 1: Multiple choice question. (25 points) 1- The time value of money concept can be defined as: a. the relationship between the supply and demand of money. b. the relationship between money spent versus money received. c. the relationship between a dollar to be received in the future and a dollar today . d. the relationship of interest rate stated and amount paid. e. None of the above. 2 - The interest rate expressed in terms of the interest payment made each period is called the rate. a. stated annual interest b. compound annual interest c. effective annual interest d. periodic interest e. daily interest. 3 - You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities? a. Both annuities are of equal value today. b. Annuity B is an annuity due. c. Annuity A has a higher future value than annuity B. d. Annuity B has a higher present value than annuity A. e. Both annuities have the same future value as of ten years from today. 4 - The long-term debt ratio is probably of most interest to a firms: a. credit customers. b. employees. c. suppliers. d. mortgage holder. e. shareholders. 5 - The three parts of the Du Pont identity can be generally described as: I. operating efficiency, asset use efficiency and firm profitability....
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