Chapterf06f-fDiscountedfCashfFlowfValuation
Chapter 06 f
Discounted Cash Flow Valuation
f f f
ff
MultiplefChoicefQuestions
f
1.fAnfordinaryfannuityfisfbestfdefinedfbyfwhichfonefofftheffollowing?f
A.fincreasingfpaymentsfpaidfforfafdefinitivefperiodfofftime
B.fincreasingfpaymentsfpaidfforever
C.fequalfpaymentsfpaidfatfregularfintervalsfoverfafstatedftimefperiod
D.fequalfpaymentsfpaidfatfregularfintervalsfofftimefonfanfongoingfbasis
E.funequalfpaymentsfthatfoccurfatfsetfintervalsfforfaflimitedfperiodfofftime
f
2.fWhichfonefofftheffollowingfaccuratelyfdefinesfafperpetuity?f
A.faflimitedfnumberfoffequalfpaymentsfpaidfinfevenftimefincrements
B.fpaymentsfoffequalfamountsfthatfarefpaidfirregularlyfbutfindefinitely
C.fvaryingfamountsfthatfarefpaidfatfevenfintervalsfforever
D.funendingfequalfpaymentsfpaidfatfequalftimefintervals
E.funendingfequalfpaymentsfpaidfatfeitherfequalforfunequalftimefintervals
f
3.fWhichfonefofftheffollowingftermsfisfusedftofidentifyfafBritishfperpetuity?f
A.fordinaryfannuity
B.famortizedfcashfflow
C.fannuityfdue
D.fdiscountedfloan
E.fconsol
f
4.fThefinterestfratefthatfisfquotedfbyfaflenderfisfreferredftofasfwhichfonefofftheffollowing?f
A.fstatedfinterestfrate
B.fcompoundfrate
C.feffectivefannualfrate
D.fsimplefrate
E.fcommonfrate
f
6-1
,Chapterf06f-fDiscountedfCashfFlowfValuation
5.fAfmonthlyfinterestfratefexpressedfasfanfannualfratefwouldfbefanfexamplefoffwhichfonefofftheffoll
owingfrates?f
A.fstatedfrate
B.fdiscountedfannualfrate
C.feffectivefannualfrate
D.fperiodicfmonthlyfrate
E.fconsolidatedfmonthlyfrate
f
6.fWhatfisfthefinterestfratefchargedfperfperiodfmultipliedfbyfthefnumberfoffperiodsfperfyearfcalled?f
A.feffectivefannualfrate
B.fannualfpercentagefrate
C.fperiodicfinterestfrate
D.fcompoundfinterestfrate
E.fdailyfinterestfrate
f
7.fAfloanfwherefthefborrowerfreceivesfmoneyftodayfandfrepaysfafsingleflumpfsumfonfaffuturefdatefi
sfcalledfa(n)f_____floan.f
A.famortized
B.fcontinuous
C.fballoon
D.fpurefdiscount
E.finterest-only
f
8.fWhichfonefofftheffollowingftermsfisfusedftofdescribefafloanfthatfcallsfforfperiodicfinterestfpayme
ntsfandfaflumpfsumfprincipalfpayment?f
A.famortizedfloan
B.fmodifiedfloan
C.fballoonfloan
D.fpurefdiscountfloan
E.finterest-onlyfloan
f
6-2
,Chapterf06f-fDiscountedfCashfFlowfValuation
9.fWhichfonefofftheffollowingftermsfisfusedftofdescribefafloanfwhereinfeachfpaymentfisfequalfinfam
ountfandfincludesfbothfinterestfandfprincipal?f
A.famortizedfloan
B.fmodifiedfloan
C.fballoonfloan
D.fpurefdiscountfloan
E.finterest-onlyfloan
f
10.fWhichfonefofftheffollowingftermsfisfdefinedfasfafloanfwhereinfthefregularfpayments,fincludingf
bothfinterestfandfprincipalfamounts,farefinsufficientftofretirefthefentirefloanfamount,fwhichfthenfm
ustfbefrepaidfinfoneflumpfsum?f
A.famortizedfloan
B.fcontinuingfloan
C.fballoonfloan
D.fremainderfloan
E.finterest-onlyfloan
f
11.fYoufarefcomparingftwofannuitiesfwhichfofferfquarterlyfpaymentsfoff$2,500fforffivefyearsfandf
payf0.75fpercentfinterestfperfmonth.fAnnuityfAfwillfpayfyoufonftheffirstfoffeachfmonthfwhilefannui
tyfBfwillfpayfyoufonftheflastfdayfoffeachfmonth.fWhichfonefofftheffollowingfstatementsfisfcorrectfc
oncerningftheseftwofannuities?f
A.fTheseftwofannuitiesfhavefequalfpresentfvaluesfbutfunequalffuturesfvaluesfatfthefendfoffyearffive
.
B.fTheseftwofannuitiesfhavefequalfpresentfvaluesfasfofftodayfandfequalffuturefvaluesfatfthefendfoffy
earffive.
C.fAnnuityfBfisfanfannuityfdue.
D.fAnnuityfAfhasfafsmallerffuturefvaluefthanfannuityfB.
E.fAnnuityfBfhasfafsmallerfpresentfvaluefthanfannuityfA.
f
6-3
, Chapterf06f-fDiscountedfCashfFlowfValuation
12.fYoufarefcomparingftwofinvestmentfoptionsfthatfeachfpayf5fpercentfinterest,fcompoundedfannu
ally.fBothfoptionsfwillfprovidefyoufwithf$12,000foffincome.fOptionfAfpaysfthreefannualfpayments
fstartingfwithf$2,000ftheffirstfyearffollowedfbyftwofannualfpaymentsfoff$5,000feach.fOptionfBfpay
sfthreefannualfpaymentsfoff$4,000feach.fWhichfonefofftheffollowingfstatementsfisfcorrectfgivenfth
eseftwofinvestmentfoptions?f
A.fBothfoptionsfarefoffequalfvaluefgivenfthatftheyfbothfprovidef$12,000foffincome.
B.fOptionfAfhasfthefhigherffuturefvaluefatfthefendfoffyearfthree.
C.fOptionfBfhasfafhigherfpresentfvaluefatftimefzerofthanfdoesfoptionfA.
D.fOptionfBfisfafperpetuity.
E.fOptionfAfisfanfannuity.
f
13.fYoufarefconsideringftwofprojectsfwithftheffollowingfcashfflows:
f f
Whichfofftheffollowingfstatementsfareftruefconcerningftheseftwofprojects?
I.fBothfprojectsfhavefthefsameffuturefvaluefatfthefendfoffyearf4,fgivenfafpositivefratefoffreturn.
II.fBothfprojectsfhavefthefsameffuturefvaluefgivenfafzerofratefoffreturn.
III.fProjectfXfhasfafhigherfpresentfvaluefthanfProjectfY,fgivenfafpositivefdiscountfrate.
IV.fProjectfYfhasfafhigherfpresentfvaluefthanfProjectfX,fgivenfafpositivefdiscountfrate.f
A.fIIfonly
B.fIfandfIIIfonly
C.fIIfandfIIIfonly
D.fIIfandfIVfonly
E.fI,fII,fandfIVfonly
f
6-4
Chapter 06 f
Discounted Cash Flow Valuation
f f f
ff
MultiplefChoicefQuestions
f
1.fAnfordinaryfannuityfisfbestfdefinedfbyfwhichfonefofftheffollowing?f
A.fincreasingfpaymentsfpaidfforfafdefinitivefperiodfofftime
B.fincreasingfpaymentsfpaidfforever
C.fequalfpaymentsfpaidfatfregularfintervalsfoverfafstatedftimefperiod
D.fequalfpaymentsfpaidfatfregularfintervalsfofftimefonfanfongoingfbasis
E.funequalfpaymentsfthatfoccurfatfsetfintervalsfforfaflimitedfperiodfofftime
f
2.fWhichfonefofftheffollowingfaccuratelyfdefinesfafperpetuity?f
A.faflimitedfnumberfoffequalfpaymentsfpaidfinfevenftimefincrements
B.fpaymentsfoffequalfamountsfthatfarefpaidfirregularlyfbutfindefinitely
C.fvaryingfamountsfthatfarefpaidfatfevenfintervalsfforever
D.funendingfequalfpaymentsfpaidfatfequalftimefintervals
E.funendingfequalfpaymentsfpaidfatfeitherfequalforfunequalftimefintervals
f
3.fWhichfonefofftheffollowingftermsfisfusedftofidentifyfafBritishfperpetuity?f
A.fordinaryfannuity
B.famortizedfcashfflow
C.fannuityfdue
D.fdiscountedfloan
E.fconsol
f
4.fThefinterestfratefthatfisfquotedfbyfaflenderfisfreferredftofasfwhichfonefofftheffollowing?f
A.fstatedfinterestfrate
B.fcompoundfrate
C.feffectivefannualfrate
D.fsimplefrate
E.fcommonfrate
f
6-1
,Chapterf06f-fDiscountedfCashfFlowfValuation
5.fAfmonthlyfinterestfratefexpressedfasfanfannualfratefwouldfbefanfexamplefoffwhichfonefofftheffoll
owingfrates?f
A.fstatedfrate
B.fdiscountedfannualfrate
C.feffectivefannualfrate
D.fperiodicfmonthlyfrate
E.fconsolidatedfmonthlyfrate
f
6.fWhatfisfthefinterestfratefchargedfperfperiodfmultipliedfbyfthefnumberfoffperiodsfperfyearfcalled?f
A.feffectivefannualfrate
B.fannualfpercentagefrate
C.fperiodicfinterestfrate
D.fcompoundfinterestfrate
E.fdailyfinterestfrate
f
7.fAfloanfwherefthefborrowerfreceivesfmoneyftodayfandfrepaysfafsingleflumpfsumfonfaffuturefdatefi
sfcalledfa(n)f_____floan.f
A.famortized
B.fcontinuous
C.fballoon
D.fpurefdiscount
E.finterest-only
f
8.fWhichfonefofftheffollowingftermsfisfusedftofdescribefafloanfthatfcallsfforfperiodicfinterestfpayme
ntsfandfaflumpfsumfprincipalfpayment?f
A.famortizedfloan
B.fmodifiedfloan
C.fballoonfloan
D.fpurefdiscountfloan
E.finterest-onlyfloan
f
6-2
,Chapterf06f-fDiscountedfCashfFlowfValuation
9.fWhichfonefofftheffollowingftermsfisfusedftofdescribefafloanfwhereinfeachfpaymentfisfequalfinfam
ountfandfincludesfbothfinterestfandfprincipal?f
A.famortizedfloan
B.fmodifiedfloan
C.fballoonfloan
D.fpurefdiscountfloan
E.finterest-onlyfloan
f
10.fWhichfonefofftheffollowingftermsfisfdefinedfasfafloanfwhereinfthefregularfpayments,fincludingf
bothfinterestfandfprincipalfamounts,farefinsufficientftofretirefthefentirefloanfamount,fwhichfthenfm
ustfbefrepaidfinfoneflumpfsum?f
A.famortizedfloan
B.fcontinuingfloan
C.fballoonfloan
D.fremainderfloan
E.finterest-onlyfloan
f
11.fYoufarefcomparingftwofannuitiesfwhichfofferfquarterlyfpaymentsfoff$2,500fforffivefyearsfandf
payf0.75fpercentfinterestfperfmonth.fAnnuityfAfwillfpayfyoufonftheffirstfoffeachfmonthfwhilefannui
tyfBfwillfpayfyoufonftheflastfdayfoffeachfmonth.fWhichfonefofftheffollowingfstatementsfisfcorrectfc
oncerningftheseftwofannuities?f
A.fTheseftwofannuitiesfhavefequalfpresentfvaluesfbutfunequalffuturesfvaluesfatfthefendfoffyearffive
.
B.fTheseftwofannuitiesfhavefequalfpresentfvaluesfasfofftodayfandfequalffuturefvaluesfatfthefendfoffy
earffive.
C.fAnnuityfBfisfanfannuityfdue.
D.fAnnuityfAfhasfafsmallerffuturefvaluefthanfannuityfB.
E.fAnnuityfBfhasfafsmallerfpresentfvaluefthanfannuityfA.
f
6-3
, Chapterf06f-fDiscountedfCashfFlowfValuation
12.fYoufarefcomparingftwofinvestmentfoptionsfthatfeachfpayf5fpercentfinterest,fcompoundedfannu
ally.fBothfoptionsfwillfprovidefyoufwithf$12,000foffincome.fOptionfAfpaysfthreefannualfpayments
fstartingfwithf$2,000ftheffirstfyearffollowedfbyftwofannualfpaymentsfoff$5,000feach.fOptionfBfpay
sfthreefannualfpaymentsfoff$4,000feach.fWhichfonefofftheffollowingfstatementsfisfcorrectfgivenfth
eseftwofinvestmentfoptions?f
A.fBothfoptionsfarefoffequalfvaluefgivenfthatftheyfbothfprovidef$12,000foffincome.
B.fOptionfAfhasfthefhigherffuturefvaluefatfthefendfoffyearfthree.
C.fOptionfBfhasfafhigherfpresentfvaluefatftimefzerofthanfdoesfoptionfA.
D.fOptionfBfisfafperpetuity.
E.fOptionfAfisfanfannuity.
f
13.fYoufarefconsideringftwofprojectsfwithftheffollowingfcashfflows:
f f
Whichfofftheffollowingfstatementsfareftruefconcerningftheseftwofprojects?
I.fBothfprojectsfhavefthefsameffuturefvaluefatfthefendfoffyearf4,fgivenfafpositivefratefoffreturn.
II.fBothfprojectsfhavefthefsameffuturefvaluefgivenfafzerofratefoffreturn.
III.fProjectfXfhasfafhigherfpresentfvaluefthanfProjectfY,fgivenfafpositivefdiscountfrate.
IV.fProjectfYfhasfafhigherfpresentfvaluefthanfProjectfX,fgivenfafpositivefdiscountfrate.f
A.fIIfonly
B.fIfandfIIIfonly
C.fIIfandfIIIfonly
D.fIIfandfIVfonly
E.fI,fII,fandfIVfonly
f
6-4
