Question 1

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 would actually be lower if the interest rate were higher, as the higher interest rate would make it more expensive to borrow money and pay back the $100 promise in the future. Therefore, the lender would demand a higher discount rate, resulting in a lower present value for the promise.

Question 2

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 3

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

To calculate the present value of future payments, we need to use the present value formula: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the discount rate (market interest rate), and n is the number of years.

So, for the first payment of $200 at the end of the first year, the present value is:

PV1 = 200 / (1 + 0.05)^1 = $190.48

For the second payment of $250 at the end of the second year, the present value is:

PV2 = 250 / (1 + 0.05)^2 = $225.75

The total present value of the income stream is:

PV1 + PV2 = $190.48 + $225.75 = $416.23

Therefore, the best choice is B, $417.23

Question 4

The patent and copyright systems

Accepted Answer

The patent and copyright systems provide legal protection to creators or inventors of intellectual property, giving them exclusive rights to their creations or inventions for a certain period of time. This increased legal protection helps to increase the incentives to create new intellectual property by providing a monetary reward for the investment of time and resources into the creation of unique and valuable intellectual property. Thus, D is the best choice.

Option A is incorrect because the patent and copyright systems do not reduce the cost of duplicating intellectual property. Option B is incorrect because the patent and copyright systems do not necessarily increase competition in the market for intellectual property. Option C is partially true, as patents and copyrights are considered forms of intellectual property, but this answer is not comprehensive enough. Finally, option E is incorrect as it is the opposite of what the patent and copyright systems are meant to do.

Question 5

One problem associated with intellectual property is that

Accepted Answer

The original producer of intellectual property often faces difficulty in preventing non-paying beneficiaries from consuming it. This is known as the problem of enforcement, where it can be challenging to prevent unauthorized access or use of intellectual property. This can lead to a loss of revenue for the original producer and reduce incentives to create new intellectual property.

Question 6

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

Accepted Answer

The present value can be calculated using the formula:
PV = FV / (1 + r)
where PV is the present value, FV is the future value, and r is the interest rate.
Plugging in the values, we get:
PV = 200 / (1 + 0.08) = $185.19
Therefore, the best choice is B.

Question 7

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

Accepted Answer

The future payment can be more valuable if the interest rate is low enough that the present value of $105 exceeds $100.

Question 8

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 9

The present value of a given payment will be lower

Accepted Answer

The present value decreases as the time until the payment is received increases, due to the time value of money.

Question 10

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

Accepted Answer

The ability to easily download and modify digital intellectual property, such as software and music, has led to the creation of a market for re-sold modified versions. This creates a problem for traditional intellectual property rights, as it can be difficult to enforce ownership and prevent unauthorized modifications and resale.

Question 11

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 calculated as:
Present Value = $100/(1 + 0.10)^1 = $90.91
Therefore, the closest answer choice is D.

Question 12

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

Accepted Answer

The present value of a future amount decreases as the interest rate used for discounting increases. This is because a higher interest rate means that money will grow faster over time, so less money is needed in the present to reach the same future amount.

Question 13

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

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n. Here, FV = $100, r = 0.10, and n = 1. So, PV = $100 / (1 + 0.10)^1 = $90.91.

Question 14

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 a future sum of money is calculated by discounting it back to the present using the formula PV = M / (1 + i)^n, where n is the number of periods. Here, n is 2, so the correct formula is M / (1 + i)^2.

Question 15

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 16

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

Accepted Answer

The process of determining the present value of future payments is called discounting, which involves reducing the future cash flows to their current value by applying a discount rate. Therefore, the best choice is E, discounting.

Question 17

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 present value can be 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 years. Plugging in the numbers, we get PV = 200 / (1 + 0.05)^2 = $181.41. Therefore, the best choice is (A).

Question 18

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 one year from now is greater than receiving it two years from now because the present value decreases as the time period increases, given the same interest rate.

Question 19

A labor union is a group of

Accepted Answer

A labor union is specifically a group of employees who join together to collectively bargain for better wages, benefits, and working conditions. The other answer choices do not accurately describe what a labor union is.

Question 20

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.

Quiz 13: Capital, Interest, and Corporate Finance