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4 - award 1 I out of T mflflmemm“" The relationship...

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Unformatted text preview: award: 1 I) out of ....... T mflflmemm“mmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmm" The relationship between present value (PVZI andthe value ofa payment due n years in the future (FVnJ when the interest rate is i is: (I Wn=Wxtnxll r FVn=PVlE1+iln 9—H" PV=FVnitl+iin r' PV=Fantl+tjn HultiJle Choice Section: Valuing Monetary Payments Now and in the Future aw ard: 2 I) out of ....... T mEmmammmmmmmm“mmmm“mmmm“mmmmmmmmmmmmmmmmmmmmmmmmmm Suppose you make a deposit $3200.00 for 1" years into an interest bearing account. The interest rate is 4.00%. The future value will be: 9—» r" $263.19 r" $151.93 C $256.00 (- $262.16 HultiJle Choice Section: Valuing Monetary Payments Now and in the Future aw 5rd. 3 0 out of compoundedinterest rate. l. conespondinotomis nenodlc rate is: f‘ I:(I”)L1 r i:(1 +1P)”L1 egfi" |=(1+lP)V—1 r‘ i:1l(1+i")l’r1 “mite Cllcioe Section Valuing Monetary Payments Now and in the Future award: 4- I) out of 10 points Suppose you borrow $1,000,000 for? days. When the annual interest rate is 600%, what amount will you owe at the end ofthe period? (Assume 365 days in the year.) ear" $1,001,118.11 (" $940,000.00 (" $1,001,121.13 (" $943,396.23 Multinlectloioe Section: Valuing Monetary Payments Now and in the Future award: 5_ flout of ................. 1. 0polnts The internal rate ofreturn is the: r ratio ofthe coupon payment to the face value on a bond issuedto finance a capital investment. (- interest cost ofa bank loan usedto purchase capital. r the interestforegone when afirm's cash is usedto buy a unit ofcapital. 9—} (- the interest rate that equates the price ofa unit of capital to the present value ofthe income flow from the capital. HultiJle Choice Section: Applying Present Value Yourfirm has three Investment options First, It can buy a $10,000 certificate of deposit (CD) at abank paying 5% Interest forthree years Second, It can use the $10,000 to buy MaehineAwhieh generates revenue of$4000 00 peryear for3years, at which point It has ascrapvalue of$0 Third, It can use the $10,000 to by Machine B, which generates revenues of $12,500.00 In yearthree, butnothing In years one andtwo Machine El also has scrapvalue of50 afier year 3 Which statement summarizes the results onthe Internal rates ofreturn (lRR) on the two machines compareownh the yieldon the bank deposit? (- lRRonElelRRonA>yieldon bankCD (- lRRonA>yieldon bankCD>lRRonB (— lRRonA=lRRonEl=erldon bankCD. 9‘} (- lRR on A > lRR on El >erld on bank CD Humanoioe section Applying Presentvalue award: 7- I) out of ................ 1. "PM“5 Which ofthe following provides a general description ofa coupon bond? (' The issuerwill in the fiJture make a single payment, which comprises both interest and principal repayment. (' The issuer makes afixed number ofequal payments, atwhich pointthe bond is consideredto be paid off. 9—» r The issuer is obligatedto make a pre—specified number offixed payments, andthen repaythe face value when the last ofthe fixed payments is made. (' The issuer is obligatedto make fixed coupon payments forever. Multinle Choice Section: Applying Present Value aw 3rd: 0 out of ".1939?“ A coupon bond With a face value of$10,000 Is forsale that promises 3 annual coupon paymenm $51,000 eadi lfthe Interest rate Is 7 0006‘ wnat Is the most you would be Willing to payloday for the bond? 1" 51509037 r' 51100000 6% (- 510787 29 r 51214953 Multiie Choice Seclion Applying Present Value aw 5rd. 9 0 out of r the nominal Interest rate. °_) (- the ex ante real interest rate (- the ex post real Interest rate r the real Interest rate adjusted for Inflation llultile (thrice Sermon Real and Nominal Interest Rates Table Scenario A Scenario B Scenario C Scenario D i Tl' i Tr i Tr i 'IT 2% 1% 0% 4% 2% —i “it: 5% 8% 9% r scenario D (' scenario B (' scenario A (' scenario C flult'ule Choice Section: Real and Nominal Interest Rates ...
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