Chapter 6 Discounted Cash Flow Valuation
Chapter 06 Quiz A
Student Name _________________________
Student ID ____________
________ 1.
You are able to pay mortgage payments of $675 a month for thirty years. The interest rate is 9.5 percent,
compounded monthly. What price house can you afford to buy if you have $5,000 cash available as a down
payment?
a. $72,712.50
b. $75,275.51
c. $80,275.51
d. $85,275.51
________ 2.
You are going to receive $6,000 at the end of each quarter for the next five years. What is the net
present value of these payments at a discount rate of 7 percent, compounded quarterly?
a. $63,564.09
b. $100,517.29
c. $102,276.34
d. $103,011.96
________ 3.
You want to retire on the day you have $1,000,000 in your savings account. You expect to earn 4 percent,
compounded monthly, on your money during your retirement. Your plan is to withdraw $4,500 a month as
retirement income from this account. How many years can you be retired until you run out of money?
a. 33.80
b. 69.56
c. 202.34
d. 405.65
________ 4.
A preferred stock pays annual dividends of $1.75. How much are you willing to pay today to buy one share
of this stock if you want to earn a 12.5 percent rate of return?
a. $6.00
b. $14.00
c. $24.00
d. $72.00
________ 5.
A project will produce cash flows of $6,000, $7,500, $9,000, and $11,000 a year for the next four years,
respectively. What is the value of these cash flows today at a discount rate of 8.5 percent?
a. $24,588.74
b. $26,884.36
c. $27,559.03
d. $37,257.92
________ 6.
Today you are opening a savings account and depositing an initial $1,000 into it. You plan to deposit $4,000
into the account one year from today and deposit another $4,000 two years from today. How much will you
have in your account ten years from today if you earn an 8 percent rate of return?
a. $6,008.85
b. $12,220.96
c. $17,558.66
d. $19,430.32
________ 7.
What is the effective annual rate of 10.75 percent compounded continuously?
a. 11.04 percent
b. 11.19 percent
c. 11.30 percent
d. 11.35 percent
________ 8.
What is the effective annual rate of 14.5 percent compounded semiannually?
a. 15.03 percent
b. 15.31 percent
c. 15.50 percent
d. 15.82 percent
________ 9.
You borrow $135,000 for twenty years at 9 percent. This is an amortized loan with monthly payments. How
much of the first payment goes to the principle balance of the loan? Assume that one month is equal to 1/12
of a year.
a. $84.38
b. $87.50
c. $193.09
d. $202.13
________ 10. You just purchased a 15-year annuity at a cost of $70,000. The annuity will pay you $1,050 at the end of each
month, starting with this month. What rate of return are you earning on this investment?
a. 15.42 percent
b. 15.52 percent
c. 16.45 percent d. 16.74 percent
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