help - Chapter 3Present Value MULTIPLE CHOICE 1. Which of...

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Chapter 3—Present Value MULTIPLE CHOICE 1. Which of the following cannot be calculated? a. Present value of an annuity. b. Future value of an annuity. c. Present value of a perpetuity. d. Future value of a perpetuity. ANS: D DIF: E REF: 3.4 Present Value of Cash Flow Streams 2. You have the choice between two investments that have the same maturity and the same nominal re- turn. Investment A pays simple interest, investment B pays compounded interest. Which one should you pick? a. A, because it has a higher effective annual return. b. A and B offer the same return, thus they are equally as good. c. B, because it has higher effective annual return. d. Not enough information. ANS: C DIF: M REF: 3.5 Special Applications of Time Value 3. For a positive r, a. future value will always exceed present value. b. future and present will always be the same. c. present value will always exceed future value. d. None of the above is true. ANS: A DIF: M REF: 3.2 Present Value of a Lump Sum 4. Which of the following statements is true? a. In an annuity due payments occur at the end of the period. b. In an ordinary annuity payments occur at the end of the period. c. A perpetuity will mature at some point in the future. d. One cannot calculate the present value of a perpetuity. ANS: B DIF: E REF: 3.4 Present Value of Cash Flow Streams 5. The Springfield Crusaders just signed their quarterback to a 10 year $50 million contract. Is this con- tract really worth $50 million? (assume r >0) a. Yes, because the payments over time add up to $50 million.
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b. No, it is worth more because he can invest the money. c. No, it would only be worth $50 million if it were all paid out today. d. Yes, because his agent told him so. ANS: C DIF: M REF: 3.4 Present Value of Cash Flow Streams 6. Last national bank offers a CD paying 7% interest (compounded annually). If you invest $1,000 how much will you have at the end of year 5. a. $712.99 b. $1,402.55 c. $1,350.00 d. $1,000 ANS: B PV: 1000 PMT:0 I/Y:7 N:5 FV:1402.55 DIF: E REF: 3.1 Future Value of a Lump Sum 7. You want to buy a house in 4 years and expect to need $25,000 for a down payment. If you have $15,000 to invest, how much interest do you have to earn (compounded annually) to reach your goal? a. 16.67% b. 13.62% c. 25.74% d. 21.53% ANS: B FV:25000 PV:15000 N:4 PMT:0 I/Y: DIF: E REF: 3.1 Future Value of a Lump Sum 8. You want to buy your dream car, but you are $5,000 short. If you could invest your entire savings of $2,350 at an annual interest of 12%, how long would you have to wait until you have accumulated enough money to buy the car? a. 9.40 years b. 3.48 years c. 7.24 years d. 6.66 years ANS: D FV:5000 PMT:0 PV:2350 I/Y:12 N:6.66 DIF: E REF: 3.1 Future Value of a Lump Sum
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9. How much do you have to invest today at an annual rate of 8%, if you need to have $5,000 6 years from today? a.
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This note was uploaded on 02/09/2011 for the course FIN 363 taught by Professor Margeryl.collins during the Spring '11 term at Park.

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help - Chapter 3Present Value MULTIPLE CHOICE 1. Which of...

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