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....... 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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 Spring '05
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