Deck 2: The Time Value of Money and Net Present Value

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Question
You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
Refer to the information above. What was your dividend yield? Round your answer to the nearest tenth of a percent.

A)1.2%
B)8.6%
C)1.3%
D)none of the above
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Question
You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.

A)9.5%
B)-0.1%
C)-5.0%
D)5.3%
Question
One hundred basis points equal

A)1%
B)10%
C)100%
D)$1
Question
If a bond trader indicates that the yield on a bond has increased by 50 basis points,
what is the percentage change in yield?
Question
What are the four assumptions that define a "perfect" market?
Question
Which of the following statements is true?

A)All rates of return are just interest rates earned on an investment.
B)An interest rate is the rate of return on a loan.
C)An interest payment can have unlimited upside potential.
D)All of the above are true statements.
Question
You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.

A)8.6%
B)7.2%
C)10.9%
D)9.9%
Question
Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you make no withdrawals, what is the balance in your account at the end of four years?
Round your answer to the nearest dollar.

A)$1,200
B)$1,216
C)$1,020
D)$1,050
Question
The Federal Reserve announced that it would lower the discount rate from 4.75% to 4.5%. This represents a decrease of

A)25 basis points
B)250 basis points
C)2.5 basis points
D)0.25 basis points
Question
You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.

A)-5.0%
B)14.7%
C)9.5%
D)4.0%
Question
Which of the following is a necessary condition of a perfect market?

A)no risk
B)no taxes
C)no inflation
D)All of the above are necessary conditions for a market to be perfect.
Question
You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
Refer to the information above. What was your coupon yield ? Round your answer to the nearest tenth of a percent.

A)9.5%
B)9 basis points
C)9.0%
D)Both B and C are correct.
Question
You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.

A)9.9%
B)8.6%
C)9.3%
D)9.2%
Question
You purchased a house for $330,000 cash one year ago. You can sell it today for $277,000. What rate of return did you earn on this investment? Round your answer to the nearest tenth
Of a percent.

A)19.1%
B)83.9%
C)-16.1%
D)none of the above
Question
Your newborn daughter has received a total of $2,500 in cash from various friends and relatives. If you deposit this money for her in an investment that returns an average return of
12% a year, how much will she have accumulated on her 21st birthday, to the nearest dollar?

A)$180,121
B)$204,247
C)$24,116
D)$27,010
Question
You have deposited $5,000 in an account that pays 5% interest each year. How much will you have in the account at the end of six years? Round your answer to the nearest dollar.

A)$6,500
B)$6,700
C)$6,381
D)none of the above
Question
Which of the following is not a necessary condition of a perfect market?

A)no taxes
B)no information differences among investors
C)no risk
D)no transaction costs
Question
You purchased a stock for $60.00. At the end of one quarter, the stock paid a $0.30
dividend and was selling for $63.00. Calculate your total holding period return and
indicate how much was dividend yield and how much was capital gain yield.
Question
You invested $10,000 in a zero-coupon bond. The bond was worth $10,750 at the end of the year. What
Rate of return did you earn on this investment? Round your answer to the nearest tenth of a
Percent.

A)1.1%
B)9.3%
C)10.8%
D)7.5%
Question
What is the difference between an interest payment and a noninterest payment as
defined in the chapter?
Question
Margaret Bodner opened a savings account for her new-born niece with $2,000. The
account pays 4% interest a year. How much will the account have in it when her niece
turns 20?
Question
Suppose you deposit $1,000 today in an account that pays interest at an annual rate of 5%. What will be the balance in the account at the end of two years if you withdraw only the
Interest paid on the interest at that time?

A)$1,100
B)$1,000
C)$1,103
D)$1,050
Question
If interest is compounded daily, then

A)the annual percentage rate (APR)is greater than the effective annual rate (AER).
B)the investor will earn less interest than if interest were compounded monthly instead.
C)the annual percentage rate (APR)is lower than the effective annual rate (AER).
D)the annual percentage rate (APR)is equal to the effective annual rate (AER).
Question
If you deposit $20,000 today in a bank account at a quoted rate of 12%, compounded quarterly, how much will be in the account in five years if you make no withdrawals? Round your
Answer to the nearest dollar.

A)$36,122
B)$21,020
C)$35,247
D)none of the above
Question
A gallon of gasoline cost $0.39 during the summer of 1968 and $3.50 in the summer of 2008. To the nearest tenth of a percent, this is an average annual increase of

A)5.6%.
B)7.8%.
C)3.1%.
D)31.9%.
Question
A mutual fund reported the following quarterly returns: 2%, -5%, 4%, 1%. To the nearest tenth of a percent, this represents an annual return of

A)3.0%.
B)1.8%.
C)2.0%.
D)1.2%.
Question
The Monumental Returns Investment Company is offering you an investment that promises you $1,000 at the end of ten years if you invest $500 today. What average annual rate of return
Does this investment promise? Round your answer to the nearest tenth of a percent.

A)100.0%
B)10.3%
C)20.0%
D)7.2%
Question
How long will it take for a $1,000 investment to grow to $3,000 if the interest rate per year is 8%, and interest is paid only at the end of each year?

A)13 years
B)15 years
C)14 years
D)12 years
Question
If you deposit $20,000 today in an account at a quoted rate of 16% a year, compounded semiannually, how much will you have in the account at the end of five years if you make no
Withdrawals?

A)$29,386
B)$43,822
C)$42,007
D)none of the above
Question
An investment earned 12% in one year. This represents an average monthly return of

A)100 basis points.
B)95 basis points.
C)9 basis points.
D)1 basis point.
Question
How long will it take to triple your investment if the interest rate per year is 9%, and interest is paid only at the end of each year?

A)13 years
B)15 years
C)11 years
D)17 years
Question
If you had deposited $1.00 in a bank account at an annual rate of 2% at the beginning of 1929, how much would you have in the account at the end of 2008, assuming the interest rate
Remained constant?

A)$160.00
B)$47.79
C)$4.88
D)$81.60
Question
If $100 is deposited into an account that earns a quoted rate of 16%, compounded quarterly, for five years, how much will be in the account at the end of the 5th year? Round your answer to
The nearest dollar.

A)$219
B)$216
C)$210
D)$190
Question
You invested $1,000 in a mutual fund at the beginning of the year. The fund reported the following quarterly returns during the year: -5%, 5%, 4%, and 8%. How much will you have
In your account at the end of the year, assuming you made no additional deposits or
Withdrawals? Ignore any fees and round your answer to the nearest dollar.

A)$1,112
B)$1,030
C)$1,120
D)none of the above
Question
If you deposit $1,000 today in a bank account that pays 4%, compounded quarterly, how much will you have in ten years?

A)$1,040.60
B)$1,104.62
C)$1,460.24
D)$1,488.86
Question
Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you withdraw one half of the year's interest at the end of each year, what is the balance in
Your account after your third withdrawal? Round your answer to the nearest dollar.

A)$1,050
B)$1,077
C)$1,000
D)$1,216
Question
In which of the following accounts would you prefer to invest your money?

A)one that pays 4.5%, compounded annually
B)one that pays 4%, compounded daily
C)one that pays 4.25%, compounded monthly
D)one that pays 4.75%, compounded quarterly
Question
Sam refuses to retire until his retirement account has a balance of at least $1 million. The account currently has a balance of $500,000, and earns a rate of 9%, compounded monthly. If
Sam does not plan to make any more deposits into his account, how long will he have to wait
Until he retires?

A)15.2 years
B)7.8 years
C)9.4 years
D)12.1 years
Question
The TriValley Corporation has a 3-month loan of $30,000. At the end of three months, the firm must repay the $30,000 plus $675 in interest. What is the effective annual rate on this loan?

A)30.6%
B)6.9%
C)9.3%
D)13.1%
Question
Which of the following loan terms would result in the lowest annual cost?

A)4% compounded annually
B)4%, compounded monthly
C)4%, compounded quarterly
D)4%, compounded daily
Question
If the cost of capital is 8% per year, what is the discount factor for a cash flow occurring in 4 years?

A)0.7350
B)1.3605
C)1.0800
D)0.9259
Question
Three years ago, Karen deposited $25,000 in an account that paid 8% annually. Today,
she transferred the funds in that account to an account that will pay her 10% annually.
How much will she have in her account three years from now?
Question
You want to set aside some money today in order to present your son with a $3,000 trip upon his graduation from high school in seven years. If your opportunity cost of capital is 10% per
Year, how much do you need to set aside? Round your answer to the nearest dollar.

A)$471
B)$1,233
C)$1,539
D)$4,843
Question
When your first child is born, you open an account for him with $5,000. If this account
will earn a compound average annual rate of 12%, is it possible for your child to
become a millionaire in his lifetime?
Question
How much must you deposit in a bank account today to have $1,000 at the end of 5 years if the bank quotes a rate of 5%, compounded daily? Assume a 365-day year and round your answer
To the nearest dollar.

A)$779
B)$951
C)$784
D)$884
Question
A bond that promises to pay $5,000 at the end of 12 months is selling for $4,695 today. What is its implied yield? Round your answer to the nearest tenth of a percent.

A)6.5%
B)9.0%
C)6.1%
D)9.4%
Question
A zero-coupon bond promises to pay $1,000 in ten years. The appropriate annual effective interest rate for the 10-year period is a constant 6%. Rounded to the nearest dollar, the current
Price of the bond is

A)$943.
B)$747.
C)$558.
D)$1,000.
Question
How much must you deposit in an account today in order to have $1,000 in your account at the end of two years if you can earn 6.5% per year on your money? Round your answer to the
Nearest dollar.

A)$939
B)$914
C)$885
D)$882
Question
A project will cost $50,000 initially, and is expected to return $25,000 in years 1 and 2, -$20,000 in year 3, and $25,000 in years 4 and 5. Calculate the project's NPV if the appropriate cost of
Capital is 20%. Round your answer to the nearest dollar.

A)+$28,010
B)-$1,276
C)-$2,247
D)+$21,872
Question
Which is the better deal: a deposit of one penny today in an account that will offer a
daily return of 100% for one month (i.e., the value of the account is doubled every day
for 30 days)or a lump sum of $10 million to be received thirty days from today?
Question
A Treasury bill promises to pay $10,000 at the end of 3 months. If its annual
percentage yield (APY)is 4%, what is its current market price?
Question
Suppose you are shopping for a loan, and three different institutions quote the same
interest rate. However, the first institution uses monthly compounding, the second
compounds interest quarterly, and the third uses semiannual compounding. Which
loan is the best deal? Why?
Question
Consider two investment opportunities. Investment 1 pays interest at the rate of 12%
per year, compounded annually while Investment 2 pays interest at the rate of 11.5% a
year, compounded daily. Assuming a 365-day year, which investment provides the
better return?
Question
A project will cost $1,000 initially, and is expected to return $500 in year 1, $400 in year 2, $300 in year 3, $100 in year 4, and nothing thereafter. What is the project's NPV if the appropriate
Cost of capital is 10%? Round your answer to the nearest dollar.

A)+$182
B)+$79
C)+$1,079
D)none of the above
Question
A certain project will cost a firm $5,000 today. The project is not expected to produce any cash flows until the second year, at which point it is expected to produce $6,200. No other cash
Flows are anticipated. If the appropriate cost of capital is 15%, what is this project's NPV?
Round your answer to the nearest dollar.

A)+$391
B)+$5,836
C)-$312
D)-$1,852
Question
You paid $713 last year for a zero-coupon bond that promised to pay you $1,000 at the end of 5 years. Rather than hold it for the remaining four years, you have decided to sell it today. The
Prevailing effective annual interest rate is 9%. To the nearest dollar, what price do you expect
To get for your bond?

A)$763
B)$708
C)$777
D)This cannot be determined with the information provided.
Question
You purchased a zero-coupon bond last week for $499. The bond promised to pay $1,000 in ten years. Since your purchase, prevailing interest rates have increased by 50 basis points. If
You assume no other changes have occurred that would affect your bond's price, which of the
Following statements is necessarily true?

A)The value of your investment has decreased to about $476.
B)The value of your investment has decreased to about $449.
C)The value of your investment has increased to about $549.
D)The value of your investment has stayed the same since this is a zero-coupon bond.
Question
How much would you have to deposit in your newborn child's account today in order
to make him a millionaire at age 36 if the account will earn an average annual rate of
10%?
Question
A certain project will cost $50,000 and is expected to produce cash flows of $15,563 for the next seven years. The appropriate cost of capital is 15%. Calculate the project's NPV, rounding
Your answer to the nearest dollar.

A)+$58,941
B)+$14,748
C)-$36,467
D)+$64,748
Question
Which of the following statements is true?

A)There is no necessary connection between a firm's growth rate and the rate of return you should expect to earn by investing in the firm.
B)Given the same expected cash flows, a firm that has a lower cost of capital will sell for a lower price than a firm that has a higher cost of capital.
C)It is always better to invest in a high-growth firm since it will offer a higher return on your investment dollars.
D)Slower growing firms are the better choice for long-term investing since they are "slow but steady" whereas the high-growth firms typically have only one or two good years after
Which they tend to earn less than the slower-growth firms.
Question
An investment will cost $1,000 on January 1, 20X0 and will offer the following payouts: <strong>An investment will cost $1,000 on January 1, 20X0 and will offer the following payouts:   What is the NPV of this investment if alternative investments offer an APR of 6%? Round your answer to the nearest dollar.</strong> A)+$30 B)+$74 C)-$35 D)-$23 <div style=padding-top: 35px> What is the NPV of this investment if alternative investments offer an APR of 6%? Round your answer to the nearest dollar.

A)+$30
B)+$74
C)-$35
D)-$23
Question
You have an investment opportunity that will cost $1,000 today and promises cash flows of $25 in 6 months, $25 in 12 months, $25 in 18 months, and $1,025 at the end of two years. If you
Could earn an APR of 6% on alternative investments, what is this investment's net present
Value? Round your answer to the nearest dollar.

A)+$981
B)-$19
C)+$18
D)-$121
Question
Pepe has won a sweepstakes and can choose between two payment options: $1 million
today or ten $125,000 payments, with the first payment to occur today. If Pepe can
earn interest at a risk-free annual rate of 5%, which is the better deal?
Question
Project Hush is expected is expected to generate net cash flows of $8,200 a year for
three years. If the appropriate cost of capital is 10%, what is the maximum amount the
Lullaby Company should be willing to invest in this project?
Question
A project will cost $3,000 today and is expected to return $2,000 over the next two
years. If the appropriate cost of capital is 15%, should this project be undertaken?
Why?
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Deck 2: The Time Value of Money and Net Present Value
1
You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
Refer to the information above. What was your dividend yield? Round your answer to the nearest tenth of a percent.

A)1.2%
B)8.6%
C)1.3%
D)none of the above
1.3%
2
You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.

A)9.5%
B)-0.1%
C)-5.0%
D)5.3%
-5.0%
3
One hundred basis points equal

A)1%
B)10%
C)100%
D)$1
1%
4
If a bond trader indicates that the yield on a bond has increased by 50 basis points,
what is the percentage change in yield?
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5
What are the four assumptions that define a "perfect" market?
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6
Which of the following statements is true?

A)All rates of return are just interest rates earned on an investment.
B)An interest rate is the rate of return on a loan.
C)An interest payment can have unlimited upside potential.
D)All of the above are true statements.
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7
You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.

A)8.6%
B)7.2%
C)10.9%
D)9.9%
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8
Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you make no withdrawals, what is the balance in your account at the end of four years?
Round your answer to the nearest dollar.

A)$1,200
B)$1,216
C)$1,020
D)$1,050
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9
The Federal Reserve announced that it would lower the discount rate from 4.75% to 4.5%. This represents a decrease of

A)25 basis points
B)250 basis points
C)2.5 basis points
D)0.25 basis points
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10
You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.

A)-5.0%
B)14.7%
C)9.5%
D)4.0%
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11
Which of the following is a necessary condition of a perfect market?

A)no risk
B)no taxes
C)no inflation
D)All of the above are necessary conditions for a market to be perfect.
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12
You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
Refer to the information above. What was your coupon yield ? Round your answer to the nearest tenth of a percent.

A)9.5%
B)9 basis points
C)9.0%
D)Both B and C are correct.
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13
You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.

A)9.9%
B)8.6%
C)9.3%
D)9.2%
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14
You purchased a house for $330,000 cash one year ago. You can sell it today for $277,000. What rate of return did you earn on this investment? Round your answer to the nearest tenth
Of a percent.

A)19.1%
B)83.9%
C)-16.1%
D)none of the above
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15
Your newborn daughter has received a total of $2,500 in cash from various friends and relatives. If you deposit this money for her in an investment that returns an average return of
12% a year, how much will she have accumulated on her 21st birthday, to the nearest dollar?

A)$180,121
B)$204,247
C)$24,116
D)$27,010
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16
You have deposited $5,000 in an account that pays 5% interest each year. How much will you have in the account at the end of six years? Round your answer to the nearest dollar.

A)$6,500
B)$6,700
C)$6,381
D)none of the above
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17
Which of the following is not a necessary condition of a perfect market?

A)no taxes
B)no information differences among investors
C)no risk
D)no transaction costs
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18
You purchased a stock for $60.00. At the end of one quarter, the stock paid a $0.30
dividend and was selling for $63.00. Calculate your total holding period return and
indicate how much was dividend yield and how much was capital gain yield.
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19
You invested $10,000 in a zero-coupon bond. The bond was worth $10,750 at the end of the year. What
Rate of return did you earn on this investment? Round your answer to the nearest tenth of a
Percent.

A)1.1%
B)9.3%
C)10.8%
D)7.5%
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20
What is the difference between an interest payment and a noninterest payment as
defined in the chapter?
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21
Margaret Bodner opened a savings account for her new-born niece with $2,000. The
account pays 4% interest a year. How much will the account have in it when her niece
turns 20?
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22
Suppose you deposit $1,000 today in an account that pays interest at an annual rate of 5%. What will be the balance in the account at the end of two years if you withdraw only the
Interest paid on the interest at that time?

A)$1,100
B)$1,000
C)$1,103
D)$1,050
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23
If interest is compounded daily, then

A)the annual percentage rate (APR)is greater than the effective annual rate (AER).
B)the investor will earn less interest than if interest were compounded monthly instead.
C)the annual percentage rate (APR)is lower than the effective annual rate (AER).
D)the annual percentage rate (APR)is equal to the effective annual rate (AER).
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24
If you deposit $20,000 today in a bank account at a quoted rate of 12%, compounded quarterly, how much will be in the account in five years if you make no withdrawals? Round your
Answer to the nearest dollar.

A)$36,122
B)$21,020
C)$35,247
D)none of the above
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25
A gallon of gasoline cost $0.39 during the summer of 1968 and $3.50 in the summer of 2008. To the nearest tenth of a percent, this is an average annual increase of

A)5.6%.
B)7.8%.
C)3.1%.
D)31.9%.
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26
A mutual fund reported the following quarterly returns: 2%, -5%, 4%, 1%. To the nearest tenth of a percent, this represents an annual return of

A)3.0%.
B)1.8%.
C)2.0%.
D)1.2%.
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27
The Monumental Returns Investment Company is offering you an investment that promises you $1,000 at the end of ten years if you invest $500 today. What average annual rate of return
Does this investment promise? Round your answer to the nearest tenth of a percent.

A)100.0%
B)10.3%
C)20.0%
D)7.2%
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28
How long will it take for a $1,000 investment to grow to $3,000 if the interest rate per year is 8%, and interest is paid only at the end of each year?

A)13 years
B)15 years
C)14 years
D)12 years
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29
If you deposit $20,000 today in an account at a quoted rate of 16% a year, compounded semiannually, how much will you have in the account at the end of five years if you make no
Withdrawals?

A)$29,386
B)$43,822
C)$42,007
D)none of the above
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30
An investment earned 12% in one year. This represents an average monthly return of

A)100 basis points.
B)95 basis points.
C)9 basis points.
D)1 basis point.
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31
How long will it take to triple your investment if the interest rate per year is 9%, and interest is paid only at the end of each year?

A)13 years
B)15 years
C)11 years
D)17 years
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32
If you had deposited $1.00 in a bank account at an annual rate of 2% at the beginning of 1929, how much would you have in the account at the end of 2008, assuming the interest rate
Remained constant?

A)$160.00
B)$47.79
C)$4.88
D)$81.60
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33
If $100 is deposited into an account that earns a quoted rate of 16%, compounded quarterly, for five years, how much will be in the account at the end of the 5th year? Round your answer to
The nearest dollar.

A)$219
B)$216
C)$210
D)$190
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34
You invested $1,000 in a mutual fund at the beginning of the year. The fund reported the following quarterly returns during the year: -5%, 5%, 4%, and 8%. How much will you have
In your account at the end of the year, assuming you made no additional deposits or
Withdrawals? Ignore any fees and round your answer to the nearest dollar.

A)$1,112
B)$1,030
C)$1,120
D)none of the above
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35
If you deposit $1,000 today in a bank account that pays 4%, compounded quarterly, how much will you have in ten years?

A)$1,040.60
B)$1,104.62
C)$1,460.24
D)$1,488.86
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36
Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you withdraw one half of the year's interest at the end of each year, what is the balance in
Your account after your third withdrawal? Round your answer to the nearest dollar.

A)$1,050
B)$1,077
C)$1,000
D)$1,216
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37
In which of the following accounts would you prefer to invest your money?

A)one that pays 4.5%, compounded annually
B)one that pays 4%, compounded daily
C)one that pays 4.25%, compounded monthly
D)one that pays 4.75%, compounded quarterly
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38
Sam refuses to retire until his retirement account has a balance of at least $1 million. The account currently has a balance of $500,000, and earns a rate of 9%, compounded monthly. If
Sam does not plan to make any more deposits into his account, how long will he have to wait
Until he retires?

A)15.2 years
B)7.8 years
C)9.4 years
D)12.1 years
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39
The TriValley Corporation has a 3-month loan of $30,000. At the end of three months, the firm must repay the $30,000 plus $675 in interest. What is the effective annual rate on this loan?

A)30.6%
B)6.9%
C)9.3%
D)13.1%
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40
Which of the following loan terms would result in the lowest annual cost?

A)4% compounded annually
B)4%, compounded monthly
C)4%, compounded quarterly
D)4%, compounded daily
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41
If the cost of capital is 8% per year, what is the discount factor for a cash flow occurring in 4 years?

A)0.7350
B)1.3605
C)1.0800
D)0.9259
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42
Three years ago, Karen deposited $25,000 in an account that paid 8% annually. Today,
she transferred the funds in that account to an account that will pay her 10% annually.
How much will she have in her account three years from now?
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43
You want to set aside some money today in order to present your son with a $3,000 trip upon his graduation from high school in seven years. If your opportunity cost of capital is 10% per
Year, how much do you need to set aside? Round your answer to the nearest dollar.

A)$471
B)$1,233
C)$1,539
D)$4,843
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44
When your first child is born, you open an account for him with $5,000. If this account
will earn a compound average annual rate of 12%, is it possible for your child to
become a millionaire in his lifetime?
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45
How much must you deposit in a bank account today to have $1,000 at the end of 5 years if the bank quotes a rate of 5%, compounded daily? Assume a 365-day year and round your answer
To the nearest dollar.

A)$779
B)$951
C)$784
D)$884
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46
A bond that promises to pay $5,000 at the end of 12 months is selling for $4,695 today. What is its implied yield? Round your answer to the nearest tenth of a percent.

A)6.5%
B)9.0%
C)6.1%
D)9.4%
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47
A zero-coupon bond promises to pay $1,000 in ten years. The appropriate annual effective interest rate for the 10-year period is a constant 6%. Rounded to the nearest dollar, the current
Price of the bond is

A)$943.
B)$747.
C)$558.
D)$1,000.
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48
How much must you deposit in an account today in order to have $1,000 in your account at the end of two years if you can earn 6.5% per year on your money? Round your answer to the
Nearest dollar.

A)$939
B)$914
C)$885
D)$882
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49
A project will cost $50,000 initially, and is expected to return $25,000 in years 1 and 2, -$20,000 in year 3, and $25,000 in years 4 and 5. Calculate the project's NPV if the appropriate cost of
Capital is 20%. Round your answer to the nearest dollar.

A)+$28,010
B)-$1,276
C)-$2,247
D)+$21,872
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50
Which is the better deal: a deposit of one penny today in an account that will offer a
daily return of 100% for one month (i.e., the value of the account is doubled every day
for 30 days)or a lump sum of $10 million to be received thirty days from today?
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51
A Treasury bill promises to pay $10,000 at the end of 3 months. If its annual
percentage yield (APY)is 4%, what is its current market price?
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52
Suppose you are shopping for a loan, and three different institutions quote the same
interest rate. However, the first institution uses monthly compounding, the second
compounds interest quarterly, and the third uses semiannual compounding. Which
loan is the best deal? Why?
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53
Consider two investment opportunities. Investment 1 pays interest at the rate of 12%
per year, compounded annually while Investment 2 pays interest at the rate of 11.5% a
year, compounded daily. Assuming a 365-day year, which investment provides the
better return?
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54
A project will cost $1,000 initially, and is expected to return $500 in year 1, $400 in year 2, $300 in year 3, $100 in year 4, and nothing thereafter. What is the project's NPV if the appropriate
Cost of capital is 10%? Round your answer to the nearest dollar.

A)+$182
B)+$79
C)+$1,079
D)none of the above
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55
A certain project will cost a firm $5,000 today. The project is not expected to produce any cash flows until the second year, at which point it is expected to produce $6,200. No other cash
Flows are anticipated. If the appropriate cost of capital is 15%, what is this project's NPV?
Round your answer to the nearest dollar.

A)+$391
B)+$5,836
C)-$312
D)-$1,852
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56
You paid $713 last year for a zero-coupon bond that promised to pay you $1,000 at the end of 5 years. Rather than hold it for the remaining four years, you have decided to sell it today. The
Prevailing effective annual interest rate is 9%. To the nearest dollar, what price do you expect
To get for your bond?

A)$763
B)$708
C)$777
D)This cannot be determined with the information provided.
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57
You purchased a zero-coupon bond last week for $499. The bond promised to pay $1,000 in ten years. Since your purchase, prevailing interest rates have increased by 50 basis points. If
You assume no other changes have occurred that would affect your bond's price, which of the
Following statements is necessarily true?

A)The value of your investment has decreased to about $476.
B)The value of your investment has decreased to about $449.
C)The value of your investment has increased to about $549.
D)The value of your investment has stayed the same since this is a zero-coupon bond.
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58
How much would you have to deposit in your newborn child's account today in order
to make him a millionaire at age 36 if the account will earn an average annual rate of
10%?
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59
A certain project will cost $50,000 and is expected to produce cash flows of $15,563 for the next seven years. The appropriate cost of capital is 15%. Calculate the project's NPV, rounding
Your answer to the nearest dollar.

A)+$58,941
B)+$14,748
C)-$36,467
D)+$64,748
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60
Which of the following statements is true?

A)There is no necessary connection between a firm's growth rate and the rate of return you should expect to earn by investing in the firm.
B)Given the same expected cash flows, a firm that has a lower cost of capital will sell for a lower price than a firm that has a higher cost of capital.
C)It is always better to invest in a high-growth firm since it will offer a higher return on your investment dollars.
D)Slower growing firms are the better choice for long-term investing since they are "slow but steady" whereas the high-growth firms typically have only one or two good years after
Which they tend to earn less than the slower-growth firms.
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61
An investment will cost $1,000 on January 1, 20X0 and will offer the following payouts: <strong>An investment will cost $1,000 on January 1, 20X0 and will offer the following payouts:   What is the NPV of this investment if alternative investments offer an APR of 6%? Round your answer to the nearest dollar.</strong> A)+$30 B)+$74 C)-$35 D)-$23 What is the NPV of this investment if alternative investments offer an APR of 6%? Round your answer to the nearest dollar.

A)+$30
B)+$74
C)-$35
D)-$23
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62
You have an investment opportunity that will cost $1,000 today and promises cash flows of $25 in 6 months, $25 in 12 months, $25 in 18 months, and $1,025 at the end of two years. If you
Could earn an APR of 6% on alternative investments, what is this investment's net present
Value? Round your answer to the nearest dollar.

A)+$981
B)-$19
C)+$18
D)-$121
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63
Pepe has won a sweepstakes and can choose between two payment options: $1 million
today or ten $125,000 payments, with the first payment to occur today. If Pepe can
earn interest at a risk-free annual rate of 5%, which is the better deal?
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64
Project Hush is expected is expected to generate net cash flows of $8,200 a year for
three years. If the appropriate cost of capital is 10%, what is the maximum amount the
Lullaby Company should be willing to invest in this project?
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65
A project will cost $3,000 today and is expected to return $2,000 over the next two
years. If the appropriate cost of capital is 15%, should this project be undertaken?
Why?
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