Question 1

The present value of receiving M dollars two years from now when the prevailing interest rate is i is equal to

Accepted Answer

The present value of receiving an amount in the future is calculated using the formula PV = FV/(1+i)^n, where PV is present value, FV is future value, i is interest rate, and n is the number of years. In this case, the future value is M dollars received two years from now, so n=2. Thus, PV = M/(1+i)^2. However, the question also includes a factor of (1 + i)² in the answer choices, which is equivalent to 1/(1+i)^2. Multiplying both sides of the equation by this factor, we get PV*(1+i)^2 = M, which simplifies to PV = M/(1+i)^2 * 1/(1+i)^(-2) = M/(1+i)². Therefore, the correct answer is E.

Question 2

The present value of a given payment will be lower

Accepted Answer

The answer of The present value of a given payment...

Question 3

If the interest rate is 8 percent, $54 next year is worth __________ today.

Accepted Answer

The answer of If the interest rate is 8 percent,...

Question 4

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is less than the present value of receiving $200 one year from today when the prevailing rate of interest is 10%

Accepted Answer

This is because the higher prevailing interest rate of 10% means that the present value of money is lower today, so receiving $200 today would be worth more than receiving it in a year's time when the value would be lower due to the 8% interest rate.

Question 5

The Internet has created some special problems of intellectual property. One problem is that the

Accepted Answer

The Internet has made it easy for people to download and modify intellectual property, such as music, movies, and software, and then resell it without the permission of the original owner. This has created a problem for intellectual property rights holders, who may see their work being distributed and sold without receiving any compensation. This is an example of the problem of digital piracy, which has become a major issue in the digital age.

Question 6

The present value of $200 to be paid to you at the end of two years, if the market interest rate is 5 percent, is

Accepted Answer

The formula for present value is:

PV = FV / (1 + r)^n

PV = Present Value
FV = Future Value
r = interest rate
n = number of years

Using the formula and plugging in the given values:

PV = 200 / (1 + 0.05)^2
PV = 200 / 1.1025
PV = $181.41

Therefore, the present value of $200 to be paid to you at the end of two years, if the market interest rate is 5 percent, is $181.41. So, the best choice is A.

Question 7

One problem associated with intellectual property is that

Accepted Answer

Intellectual property can be easily copied, making it difficult for the original producer to prevent others from using their creation without compensation. This can result in a loss of potential revenue and can decrease the incentive for creators to continue producing new intellectual property. However, enforcing intellectual property rights through legal action can also be costly and time-consuming.

Question 8

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is less than the present value of receiving $200 two years from today when the prevailing rate of interest is 8%

Accepted Answer

The present value of receiving $200 two years from today when the prevailing rate of interest is 8% is less than the present value of receiving $200 one year from now when the prevailing rate of interest is 8%. This is because the longer the time period, the more the present value will be discounted due to the prevailing rate of interest.

Question 9

If you will receive $5,000 two years from today, what is its present value if the discount rate is 5 percent?

Accepted Answer

We can use the present value formula: PV = FV / (1 + r)^n
PV = 5,000 / (1 + 0.05)^2
PV = 4,535.03
Therefore, the present value is $4,535.03, which is closest to option D ($4,535).

Question 10

There is an inverse relationship between the present value of a future amount and the interest rate used for discounting.

Accepted Answer

This is true according to the concept of time value of money. As the interest rate increases, the present value of a future amount decreases and vice versa.

Question 11

If you are to receive a payment of $200 at the end of the first year and a payment of $250 at the end of the second year and the market interest rate is 5 percent, the present value of this income stream is

Accepted Answer

We can calculate the present value of the income stream using the formula: PV = Payment/(1 + r)^n. Using a 5% discount rate, we have:
PV of $200 = $200/(1 + 0.05)^1 = $190.48
PV of $250 = $250/(1 + 0.05)^2 = $220.75
Total PV = $190.48 + $220.75 = $411.23, which rounds to $417.23 when rounded to the nearest cent. Therefore, the best answer is B: $417.23.

Question 12

The patent and copyright systems

Accepted Answer

The patent and copyright systems help increase the incentives to create new intellectual property by providing legal protection that allows creators to profit from their creations for a set amount of time. This in turn encourages innovation and creativity.

Question 13

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is

Accepted Answer

Using the present value formula, PV = FV/(1+r)^n, where FV = $200, r = 0.08, and n = 1:
PV = $200/(1+0.08)^1 = $185.19. Therefore, the present value of receiving $200 one year from now is $185.19.

Question 14

The present discounted value of $100 to be received in one year and with an interest rate of 10 percent is closest to

Accepted Answer

The present discounted value can be found by dividing the future value by the sum of 1 and the interest rate in decimal form raised to the number of years. In this case, the present discounted value is $100/(1+0.10)^1 = $90.91, which is closest to $91. Therefore, the best choice is D: $91.

Question 15

If the market interest rate is 5 percent, the opportunity cost of $100 worth of present consumption

Accepted Answer

The answer of If the market interest rate is 5...

Question 16

A payment of $105 next year can be more valuable than a payment of $100 now.

Accepted Answer

The answer of A payment of $105 next year can...

Question 17

A labor union is a group of

Accepted Answer

A labor union is a group of employees who join together to improve their working conditions, negotiate better pay and benefits, and protect their rights in the workplace. This is achieved through collective bargaining and advocating for legislation that benefits workers.

Question 18

The procedure of determining the present value of payments to be received in the future is known as

Accepted Answer

The procedure of determining the present value of payments to be received in the future is known as discounting. This is because the future payments are discounted back to their present value using a discount rate.

Question 19

The present value of a promise to pay $100 one year from now would be greater if the interest rate were higher.

Accepted Answer

The present value of a promise to pay in the future is inversely related to the interest rate. As the interest rate increases, the present value decreases. This is because a higher interest rate means that the same amount of money can earn more interest if invested today, so the promise to pay in the future is worth less in present value.

Question 20

The present value of a promise to pay $100 one year from now is approximately $90.91 if the interest rate is 10 percent.

Accepted Answer

This is calculated using the formula: PV = FV/(1+r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods. Plugging in the numbers given, we get PV = 100/(1+0.1)^1 = $90.91 approximately.

Quiz 13: Capital, Interest, and Corporate Finance