warning – questions on both sides of this piece of paper !!!
Midterm Exam #1,UGBA 103
Page 1 of 4
1.
Short answer questions (straightforward, no tricks, and almost no calculation is needed)
A. (true/false) In the U.S. today, $1 paid today is equal to $1 paid in two years:
A)
true
false
B.
What is the present value of a payment of $2,490 received in year 7 if the
B)
correct, riskadjusted discount rate is 10.41% per year ?
C.
(true/false) Both stocks and bonds can be valued by discounting expected
C)
true
false
future cashflows:
D. (true/false) In the U.S. today, discount factors are sometimes greater than 1.
D)
true
false
E.
If you invest $100 at an APR of 11% (with semiannual compounding),
how much will you have in 5 years ?
E)
F.
(true/false) A growing perpetuity has a greater present value than a
regular perpetuity if
i) the discount rate and growth rate are positive;
F)
true
false
ii) the discount rate is greater than the growth rate;
and
iii) the
cashflows are positive and equal at year 1.
G. (true/false) The payback rule usually takes into account all future cashflows.
G)
true
false
H. What is the present value of receiving $17 every year, starting in one year,
forever if the correct, riskadjusted discount rate is 5% per year ?
H)
I.
(true/false) We should include sunk costs in an NPV calculation if the
cost are associated with the project in question.
I)
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 Fall '07
 Berk
 Net Present Value, GenLite

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