Chapter 6 test bank

Chapter 6 Test Bank
Download Document
Showing pages : 1 - 6 of 46
This preview has blurred sections. Sign up to view the full version! View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 5 Discounted Cash Flow Valuation I. DEFINITIONS Topic: ANNUITY 1. An annuity stream of cash flow payments is: A) A set of level cash flows occurring each time period for a fixed length of time. B) A set of level cash flows occurring each time period forever. C) A set of increasing cash flows occurring each time period for a fixed length of time. D) A set of increasing cash flows occurring each time period forever. E) A set of arbitrary cash flows occurring each time period for no more than 10 years. Answer: A Topic: PRESENT VALUE FACTOR FOR ANNUITIES 2. The present value factor for annuities is calculated as: A) (1 + present value factor)/r B) (1 present value factor)/r C) Present value factor + (1/r) D) (Present value factor*r) + (1/r) Answer: B Topic: FUTURE VALUE FACTOR FOR ANNUITIES 3. The future value factor for annuities is calculated as: A) Future value factor + r B) (1/r) + (future value factor*r) C) (1/r) + future value factor D) (Future value factor 1)/r E) (Future value factor + 1)/r Answer: D Topic: ANNUITIES DUE 4. Annuities where the payments occur at the end of each time period are called ___________, whereas __________ refer to annuity streams with payments occuring at the beginning of each time period. A) ordinary annuities; early annuities B) late annuities; straight annuities C) straight annuities; late annuities D) annuities due; ordinary annuities E) ordinary annuities; annuities due Answer: E Topic: PERPETUITY 5. An annuity stream where the payments occur forever is called a(n) ____________. A) annuity due B) indemnity C) perpetuity D) amortized cash flow stream E) amortization table Answer: C Topic: STATED INTEREST RATES 6. The interest rate expressed in terms of the interest payment made each period is called the: A) Stated interest rate. B) Compound interest rate. C) Effective annual rate. D) Periodic interest rate. E) Daily interest rate. Answer: A Topic: EFFECTIVE ANNUAL RATE 7. The interest rate expressed as if it were compounded once per year is called the: A) Stated interest rate. B) Compound interest rate. C) Effective annual rate. D) Periodic interest rate. E) Daily interest rate. Answer: C Topic: ANNUAL PERCENTAGE RATE 8. The interest rate charged per period multiplied by the number of periods per year is called the: A) Effective annual rate (EAR). B) Annual percentage rate (APR). C) Periodic interest rate. D) Compound interest rate. E) Daily interest rate. Answer: B Topic: PURE DISCOUNT LOAN 9. A loan where the borrower receives money today and repays a single lump sum at some time in the future is called a(n) _____________ loan. A) amortized B) continuous C) balloon D) pure discount E) interest-only Answer: D Topic: INTEREST-ONLY LOAN 10. A loan where the borrower pays interest each period and repays the entire principal of the loan at some point in the future is called a(n) _________ loan. ...
View Full Document