FIN:3300 Exam 1 Questions With Correct Answers
Which loan type requires the borrower to repay a single lump sum
payment at some time in the future with interest? Correct Answer-Pure
Discount
Which loan type requires calls for the borrower to pay interest each
period and to repay the entire principal at some point in the future?
Correct Answer-interest-only
Suppose a business takes out a $7000 five year loan at 6 percent that will
be paid annually with a single, fixed payment each period. How much
will be the annual payment? Correct Answer-$1661.88
The rate of return is also called the Correct Answer-discount rate, hurdle
rate, and opportunity cost of capital
If you are paid $1000 at the end of each year for the next five years,
what type of cash flow did you receive? Correct Answer-an annuity
What is the present value of $1000 per year annuity for five years at an
interest rate of 12 percent? Correct Answer-$3604.78
What is the NPV of the following cash flow sequence at a discount rate
of 11 percent. (t=0, -120,000: 1, 300,000: 2, -100,000) Correct Answer--
$69,108.03
, A safe dollar is always worth less than a risky dollar because the rate of
return on a safe investment is generally low and the rate on a risky
investment is generally high Correct Answer-False
For $10,000 you can purchase a five year annuity that will pay $2504.57
per year for five years. The payments occur at the end of each year.
Calculate the effective annual interest rate implied by this arrangement
Correct Answer-8%
At an interest rate of 10 percent, which of the following sequences of
cash flows should you prefer Correct Answer-Option A, because it has
highest NPV
John House has taken a $250,000 mortgage on his house at an interest
rate of 6 percent per year. If the mortgage calls for 20 equal, annual
payments, what is the amount of each payment? Correct Answer-
$21,796.14
If the present value of $1 received n years from today at an interest rate
of r is 0.3855, then what is the future value of $1 invested today at an
interest rate of r percent for n years Correct Answer-1/0.3855 = 2.594
The opportunity cost of capital for a risky project is Correct Answer-the
expected rate of return on a security of similar risk as the project
An annuity is defined as a set of Correct Answer-equal cash flows
occurring at equal intervals of time for a specified period
Which loan type requires the borrower to repay a single lump sum
payment at some time in the future with interest? Correct Answer-Pure
Discount
Which loan type requires calls for the borrower to pay interest each
period and to repay the entire principal at some point in the future?
Correct Answer-interest-only
Suppose a business takes out a $7000 five year loan at 6 percent that will
be paid annually with a single, fixed payment each period. How much
will be the annual payment? Correct Answer-$1661.88
The rate of return is also called the Correct Answer-discount rate, hurdle
rate, and opportunity cost of capital
If you are paid $1000 at the end of each year for the next five years,
what type of cash flow did you receive? Correct Answer-an annuity
What is the present value of $1000 per year annuity for five years at an
interest rate of 12 percent? Correct Answer-$3604.78
What is the NPV of the following cash flow sequence at a discount rate
of 11 percent. (t=0, -120,000: 1, 300,000: 2, -100,000) Correct Answer--
$69,108.03
, A safe dollar is always worth less than a risky dollar because the rate of
return on a safe investment is generally low and the rate on a risky
investment is generally high Correct Answer-False
For $10,000 you can purchase a five year annuity that will pay $2504.57
per year for five years. The payments occur at the end of each year.
Calculate the effective annual interest rate implied by this arrangement
Correct Answer-8%
At an interest rate of 10 percent, which of the following sequences of
cash flows should you prefer Correct Answer-Option A, because it has
highest NPV
John House has taken a $250,000 mortgage on his house at an interest
rate of 6 percent per year. If the mortgage calls for 20 equal, annual
payments, what is the amount of each payment? Correct Answer-
$21,796.14
If the present value of $1 received n years from today at an interest rate
of r is 0.3855, then what is the future value of $1 invested today at an
interest rate of r percent for n years Correct Answer-1/0.3855 = 2.594
The opportunity cost of capital for a risky project is Correct Answer-the
expected rate of return on a security of similar risk as the project
An annuity is defined as a set of Correct Answer-equal cash flows
occurring at equal intervals of time for a specified period
