FINA 4330 Midterm Exam Questions with Correct Answers Latest Update 2025/2026
The payback rule ignores the time value of money
T/F - Answers true
There can never be more than one IRR for any set of cash flows
T/F - Answers false
Generally, a bond can be valued as a package of
a. an annuity and a perpetuity
b. a perpetuity and a single payment
c. an annuity and a single payment
d. none of the above - Answers c
an annuity is an asset that pays a fixed sum each year for a specific number of years
T/F - Answers true
if the present vale of $250 expected to be received one year from today is $200, what is the
discount rate?
a. 10%
b. 20%
c. 25%
d. none of the above - Answers c
according to the net present value rule, an investment in a project should be made if the:
a. NPV is greater than the cost of the investment
b. NPV is greater than the present value of cash flows
c. NPV is positive
d. NPV is negative - Answers c
Depreciation acts as a tax shield in reducing taxes
T/F - Answers true
Money that a firm has already spent or committed to spend regardless of whether a project is
, taken is called:
a. fixed cost
b. opprtunity cost
c. sunk cost
d. none of the above - Answers c
diversification reduces risk because prices of different securities do not move exactly together
T/F - Answers true
The risk that cannot be eliminated by diversification is called market risk
T/F - Answers true
what is the discount factor for a cash flow received in 10 periods if the discount rate is 8%
a. 1.08
b. 0.926
c. 2.16
d. 0.46 - Answers d
if the internal rate of return (IRR) of a project's stream of cash flows is lower than your cost of
capital, then you should invest in the project
T/F - Answers false
to buy your car, you took out a lone from the bank. the loan requires you to make a fixed
payment every month for five years. the loan is an example of a:
a. perpetuity
b. growing perpetuity
c. annuity
d. growing annuity - Answers c
chipotles stock has been very volatile since reports of food poising at its restaurant. in fact,
chipotles volatility has been four times as high as the S&P 500 index. Generally, though,
restaurant stocks tend to rise and fall by a smaller amount than the S&P 500 index - people
need to eat in good times and bad. you decide to take a big risk by buying lots of Chipotle's
stock, and so you expect to ear higher than the S&P 500 index.
The payback rule ignores the time value of money
T/F - Answers true
There can never be more than one IRR for any set of cash flows
T/F - Answers false
Generally, a bond can be valued as a package of
a. an annuity and a perpetuity
b. a perpetuity and a single payment
c. an annuity and a single payment
d. none of the above - Answers c
an annuity is an asset that pays a fixed sum each year for a specific number of years
T/F - Answers true
if the present vale of $250 expected to be received one year from today is $200, what is the
discount rate?
a. 10%
b. 20%
c. 25%
d. none of the above - Answers c
according to the net present value rule, an investment in a project should be made if the:
a. NPV is greater than the cost of the investment
b. NPV is greater than the present value of cash flows
c. NPV is positive
d. NPV is negative - Answers c
Depreciation acts as a tax shield in reducing taxes
T/F - Answers true
Money that a firm has already spent or committed to spend regardless of whether a project is
, taken is called:
a. fixed cost
b. opprtunity cost
c. sunk cost
d. none of the above - Answers c
diversification reduces risk because prices of different securities do not move exactly together
T/F - Answers true
The risk that cannot be eliminated by diversification is called market risk
T/F - Answers true
what is the discount factor for a cash flow received in 10 periods if the discount rate is 8%
a. 1.08
b. 0.926
c. 2.16
d. 0.46 - Answers d
if the internal rate of return (IRR) of a project's stream of cash flows is lower than your cost of
capital, then you should invest in the project
T/F - Answers false
to buy your car, you took out a lone from the bank. the loan requires you to make a fixed
payment every month for five years. the loan is an example of a:
a. perpetuity
b. growing perpetuity
c. annuity
d. growing annuity - Answers c
chipotles stock has been very volatile since reports of food poising at its restaurant. in fact,
chipotles volatility has been four times as high as the S&P 500 index. Generally, though,
restaurant stocks tend to rise and fall by a smaller amount than the S&P 500 index - people
need to eat in good times and bad. you decide to take a big risk by buying lots of Chipotle's
stock, and so you expect to ear higher than the S&P 500 index.
