Finance 310 Exam | Answered with complete solutions

Finance 310 Exam | Answered with complete solutions The value in t years of an investment made today at interest rate r is called the _________ of your investment. A: Present value B: Compound value C: Future value D: ...

Finance 310 Exam | Answered with complete solutions The value in t years of an investment made today at interest rate r is called the _________ of your investment. A: Present value B: Compound value C: Future value D: Simple value A dollar invested today at 8.0 percent interest compounded annually will be worth _________ three years from now. A: $1.08 B: $1.1664 C: $1.2597 FV = $1.00 x (1 + 0.8)^3 A dollar invested today at 8.0 percent simple annual interest will be worth __________three years from now. A: $1.16 B: $1.26 C: $1.24 With simple interest, the bank calculates interest only on the principle investment: $1.00 +$.08+$0.8+$0.8 = $1.24. Do not confuse this with compound interest, which computes interest earned on interest. Assume you have $100 to invest today. Investing it at 5% interest compounded annually will yield ________ in 10 years, while investing it at 6% interest compounded annually will yield ___________ in 10 years. A: $179.08 ; $162,89 B: $162.89; $179.08 C: $179.08; $179.08 D: $162.89; $175.00 Joseph signs a contract with a company that will pay him $25,000. Following the principles of the time value of money, Joseph would be best off if he received payment: A: at the beginning of the project B: At the end of the project C: In 3 equal monthly sums The time value of money states that a dollar today is worth more than a dollar tomorrow. Therefore, if he received the $25,000 at the beginning of the project, he would have 3 months to invest his money and have it grow. Compound growth means that value increases after 2 periods by: A: growth rate^t B: (1 + growth rate)^t C: (1 - growth rate)^t D: 1/ growth rate x t The time value of money concept states that a dollar today is worth __________ a dollar tomorrow. A: more than B: the same as C: less than Discounting a future value FV at interest rate r over time t is termed a _______________ calculation A: present interest B: discounted cash-flow C: discounted interest D: discounted present factor Another name for the interest rate used to calculate PV is the _________ rate. A: federal funds B: inflation C: discount D: money market Which of the following is the correct formula for the discount factor? A: 1/(1+r) x t B: 1/(1+r)^t C: (1+r) D: 1/(1+4) If the interest rate (r) increases, what will happen to present value (PV) over time? A: PV will remain constant B: PV will decline C: PV will increase If the interest rate increases, the present value will decrease over time. If the future value is $500 in 1 year and the interest rate is 12 percent per year, what is the present value? A: $512 B: $488 C: $446.43 D: $462.18 $500/1.12 = $446.43 If the interest rate is 10% per year, then what is the present value (PV) of $100 received one year from today? A: $90.91 B: $110.00 C: $86.78 D: $90.00 PV = $100/1.10 = $90.91 If the interest rate is held constant, present value will ________as the time period ____________. A: decrease ; increase B: remain constant; increases C: decrease; decreases D: increase; increases Present value will decrease as the time period increases. this follows the time value of money concept that a dollar today is worth more than a dollar tomorrow. Real-world investments often involve many payments received or paid over time. Managers refer to this as a _________ A: payment sequence B: amortized flows C: cash flow bonus D: stream of cash flows You are offered an investment that will return $1000 to you 5 years from now on a payment today of $750. What is the annual interest rate implicit promised on this investment? A: 5.92 percent B: 6.54 percent C: 5.75 percent D: 7.50 percent r = (FV/PV)^1/t - 1 r = (1000/750)^1/5 - r = 5.92 percent A perpetuity is a constant stream of cash flows for a(n)_________period of time. A: infinite B: random C: finite D: undetermined C/r is the formula for the present value of a(n)_______ A: growing perpetuity B: growing annuity C: perpetuity D: annuity A fixed stream of cash flows that ends after a specified number of years is called a(n): A: perpetutity B: net present value C: annuity D: consol If interest rates go up, the present value of a perpetuity will ____________ A: remain unchanged B: decrease C: increase The present value of an annuity of $1 per period is called the _________ A: annuity payment B: interest rate C: annuity factor D: perpetuity An annuity due is a series of level payments that begin__________. A: one year in the past B: one year hence C: any time in the future D: immediately If the interest rate is greater than zero, the present value of an annuity due is always __________ an ordinary annuity. A: equal to B: greater than C: less than Cash flows for annuities due always come one period earlier than the corresponding cash flows for ordinary annuities. Therefore, each is discounted for one less period and the present value for the annuity due increases by a factor of (1+r) over that of the ordinary annuity The present value of an annuity due is equal to the: A: present value of an ordinary annuity x r B: present value of ordinary annuity + (1-r) C: present value of an ordinary annuity / (1+r) D: present value of an ordinary annuity x (1+r) The annual percentage rate (APR) on a loan or investment is properly defined as: A: The rate applied to the loan or investment balance per year B: The annually compounded rate of interest C: The interest rate per period multiplied by the number of compounding periods per year D: A rate that is changed every year by the Federal Reserve Bank The periodic interest rate multiplied by the number of compounding periods per year. Which of the following is a proper definition for the effective annual interest rate? A: the interest rate that is annualized using compound interest B: The interest rate that is annualized using simple interest C: the interest rate that is annualized using interval interest The best known price index used by economists who measure inflation is_____________. A: The purchasing managers' index (PMI) B: The DOW Jones index C: The index of leading indicators D: The consumer price index (CPI) Financial statements provide investors with information about a company's A: earnings B: Budgets C: time tables D: assets and liabilities Uses of funds raised by a company are known as_____________. A: assets B: liabilities What is the order of current assets in order of liquidity? 1. cash 2. accounts receivable 3. inventory Fixed assets include: A: inventory B: equipment C: buildings D: supplies On the balance sheet, the amount listed for the gross value of an asset is the assets' A: depreciation B: book value C: Fair value D: original cost Intangible assets include: A: property B: goodwill C: accounts receivable D: brand name Liabilities represent: A: something of value to the company B: long-term investments C: money to be received by the company D: money owed by the company Current liabilities must be repaid within the year: True False Current assets minus current liabilities is known as: A: net working capital B: net income C: net current liabilities D: net earnings Long-term liabilities include which of the following? A: long-term bank loans B: Property, plant and equipment C: accounts payable D: marketable securities Which of the following financial statements are public companies required to file with the SEC each quarter? A: statement of cash flows B: statement of retained earnings C: balance sheet D: income statement Longer lived assets are known as __________Assets. A: current B: future C: fixed Debt that needs to be repaid after one year is known as: A: intangible liabilities B: current liabilities C: fixed liabilities D: long-term liabilities Financial statements called 10K that are provided ______________ contains more detailed information about the outcome of the company for the entire year. A: annually B: quarterly C: semi-annually D: monthly Shareholders' equity is made up of which of the following? A: treasury stock B: stock shares C: liabilities D: retained earnings According to GAAP, assets must be shown on the balance sheet at book value. Book value is equal to: A: a percentage of total assets B: historical cost adjusted for depreciation C: historical cost adjusted for inflation D: historical cost less fair market value Managers use a common-size sheet to: A: determine the opportunity cost of capital B: compare items from year to year C: Calculate total assets and liabilities D: determine dividends The rules governing the depreciation of asset values ___________ reflect actual loss of market value A: do B: do not Claims to the assets after paying off the liabilities is known as shareholders' ____________. Equity A common-size balance sheet expresses all items as a percentage of A: total liabilities B: shareholders' equity C: total assets D: sales Market values of assets and liabilities measure ____________value. Book values are based on _____________ value.