Question 1

Suppose your bank account pays a 5% interest rate. You are considering purchasing a share of stock in DH Corporation for $250. The stock will pay you a $10 dividend at the end of years 1, 2, 3, 4, and 5. You expect to be able to sell the stock at the end of year 5 for $300. Is DH a good investment? Provide evidence to support your answer.

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Question 2

List two ways a risk adverse person may attempt to reduce risks.

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Question 3

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

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Question 4

A payment of $10,000 is to be made in the future. The interest rate 3%. Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

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Question 5

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

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Question 6

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

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Question 7

Suppose you place $500 into a savings account that will pay you 6% interest per year. What will be the future value of the savings account in 15 years?

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Question 8

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project? Show evidence to support your answer.

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Question 9

Jack's Lock and Key is considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year and have no effect after then. If the interest rate is 5%, should Jack's remodel? Defend your answer by showing your work.

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Question 10

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

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Question 11

If the interest rate is 8 percent, then what is the present value of $5,000 to be received in ten years?

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Question 12

Thompson Corporation is considering the purchase of a new piece of machinery. Thompson expects the new machinery to increase its revenues by $70,000 at the end of year 1, $60,000 at the end of year 2, and $50,000 at the end of year 3 at which point the machinery will have exhausted its useful life. If the interest rate is 4%, what is the most Thompson should be willing to pay today for this piece of machinery?

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Question 13

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

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Question 14

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

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Question 15

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

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Question 16

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

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Question 17

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

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Question 18

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

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Question 19

The nation of Zambonia experiences the same rate of population growth every year. If the population of Zambonia doubles every 35 years, then what is the approximate annual rate of population growth?

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Question 20

Suppose your bank account pays a 4% interest rate. You are considering purchasing a share of stock in ABC Corporation for $500. The stock will pay you a $10 dividend at the end of years 1, 2, and 3. You expect to be able to sell the stock at the end of year 3 for $550. Is ABC a good investment? Provide evidence to support your answer.

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Quiz 27: The Basic Tools of Finance

List two ways a risk adverse person may attempt to reduce risks.

Suppose you place $1,000 into a savings account that will pay you 4% interest per year. What will be the future value of the savings account in 10 years?

A payment of $10,000 is to be made in the future. The interest rate 3%. Is this payment worth more if it is paid in 5 years or 10 years? How much more is it worth?

Suppose the interest rate is 3% and that you are to receive three annual payments of $1,000, with the first payment today, the second payment one year from now, and the third payment two years from now. What is the present value of this stream of payments?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. What interest rate represents the cutoff between profitability and nonprofitability for this project?

Suppose you place $500 into a savings account that will pay you 6% interest per year. What will be the future value of the savings account in 15 years?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 7%, should the firm undertake the project? Show evidence to support your answer.

If a savings account pays 3.5% interest, then according to the rule of 70 how long will it take for the account balance to double?

If the interest rate is 8 percent, then what is the present value of $5,000 to be received in ten years?

If a savings account pays 7% interest, then according to the rule of 70 how long will it take for the account balance to double?

Suppose you invest $10,000 at 7% interest to be withdrawn by your heirs in 100 years. According to the rule of 70, approximately how much will your heirs be able to withdraw?

A company has an investment project that will cost $2 million today and yield a payoff of $3 million in 5 years. If the interest rate is 9%, should the firm undertake the project? Show evidence to support your answer.

Write the formula to find the present value of $750 to be paid in 5 years if the interest rate is 3 percent.

If the interest rate is 5 percent, then what is the present value of $2,000 to be received in three years?

Suppose the interest rate is 5% and that you are to receive three annual payments of $10,000, with the first payment one year from now, the second payment two years from now, and the third payment three years from now. What is the present value of this stream of payments?

The nation of Zambonia experiences the same rate of population growth every year. If the population of Zambonia doubles every 35 years, then what is the approximate annual rate of population growth?