Chapter 6 Discounted Cash Flow Valuation
Chapter 06 Quiz
Remember: For nonannual compounding, make these changes: multiply the “N”, divide the “I”, and divide the “PMT” (If it’s
an annuity)
________ 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?