Fin 200 Exam 4 Questions with
Correct Answers
The actual rate earned by the lender or paid by the borrower when compounding is
accounted for is known as what? - Answer- Effective rate
What do we call the interest earned or charged on both the principal amount and the
accrued interest that has previously been earned or charged? - Answer- Compound
interest
When calculating the present value of a cash flow, or series of cash flows, the rate we
apply is known as what? - Answer- Discount rate
What do we call the actual return on an investment that takes into account the time
value of money? - Answer- The internal rate of return
The types of mortgages that are provided to borrowers with an excellent credit rating
are known as what? - Answer- Prime mortgages
The method we use to justify the acquisition of capital goods is known as what? -
Answer- Capital Budgeting
The process of using mathematics to find an unknown value between known values is
called what? - Answer- Interpolation
The process of calculating the present value of a future cash flow is known as what? -
Answer- Discounting
Unlike the payback period, the discounted payback period accounts for what? - Answer-
The required rate of return
ABC Company has a capital structure of .80 equity and .20 debt. The required return on
equity is 16% and the interest rate on debt is 10%. The company has a tax rate of 20%.
What is this company's WACC? - Answer-
You invest $10,000 at 5% per year. How much money will you have at the end of seven
years? - Answer-
Correct Answers
The actual rate earned by the lender or paid by the borrower when compounding is
accounted for is known as what? - Answer- Effective rate
What do we call the interest earned or charged on both the principal amount and the
accrued interest that has previously been earned or charged? - Answer- Compound
interest
When calculating the present value of a cash flow, or series of cash flows, the rate we
apply is known as what? - Answer- Discount rate
What do we call the actual return on an investment that takes into account the time
value of money? - Answer- The internal rate of return
The types of mortgages that are provided to borrowers with an excellent credit rating
are known as what? - Answer- Prime mortgages
The method we use to justify the acquisition of capital goods is known as what? -
Answer- Capital Budgeting
The process of using mathematics to find an unknown value between known values is
called what? - Answer- Interpolation
The process of calculating the present value of a future cash flow is known as what? -
Answer- Discounting
Unlike the payback period, the discounted payback period accounts for what? - Answer-
The required rate of return
ABC Company has a capital structure of .80 equity and .20 debt. The required return on
equity is 16% and the interest rate on debt is 10%. The company has a tax rate of 20%.
What is this company's WACC? - Answer-
You invest $10,000 at 5% per year. How much money will you have at the end of seven
years? - Answer-
