The correct answer for each question is indicated by a .

1

The present value of $115,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is:

A)

$121,000

B)

$100,500

C)

$110,000

D)

$104,545

2

A two-year discount factor at a discount rate of 10% per year is:

A)

0.826

B)

1.000

C)

0.909

D)

0.814

3

If the present value of $444 to be paid at the end of one year is $400, what is the one year discount factor?

A)

0.9009

B)

1.11

C)

0.11

D)

None of the above

4

If you invest $100,000 today at 12% interest rate for one year, what is the amount you will have at the end of the year?

A)

$90,909

B)

$112,000

C)

$100,000

D)

None of the above

5

The opportunity cost of capital for a risky project is

A)

The expected rate of return on a government security having the same maturity as the project

B)

The expected rate of return on a well diversified portfolio of common stocks

C)

The expected rate of return on a portfolio of securities of similar risks as the project

D)

None of the above

6

If the present value of the cash flow X is $200, and the present value cash flow Y is $150, then the present value of the combined cash flow is:

A)

$200

B)

$150

C)

$50

D)

$350

7

You are a charitable organization that plans to provide $100,000 per year in perpetuity to needy children. How much would a donor need to provide today to fund this goal? Assume that the first payment out of the charitable organization will start one year from today. The interest rate is 10%.

A)

$1,000,000

B)

$10,000,000

C)

$100,000

D)

None of the above

8

What is the present value annuity due factor of $1 at a discount rate of 15% for 15 years?

A)

5.8474

B)

8.5143

C)

7.1324

D)

6.7245

9

Find the present value of a perpetuity that pays $3.40 one year from now and is growing at a constant rate of 3%. The discount rate is 14%.

A)

$3.40

B)

$24.29

C)

$30.91

D)

$113.33

10

Mr. Hopper is expected to retire in 28 years and he wishes accumulate $750,000 in his retirement fund by that time. If the interest rate is 10% per year, how much should Mr. Hopper put into the retirement fund at the end of each year in order to achieve this goal?

A)

$4,559.44

B)

$5,588.26

C)

$9,118.88

D)

$10,018.67

11

John House has taken a $150,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for thirty equal annual payments, what is the amount of each payment?

A)

$14,158.94

B)

$10,897.34

C)

$16,882.43

D)

$17,657.35

12

What is the present value of a perpetuity that pays $10 per year if the interest rate is 14%?

A)

$10.00

B)

$14.00

C)

$65.76

D)

$71.43

13

A bank offers the following investments. Which do you prefer?

A)

A stated rate of 10% continuously compounded

B)

A stated rate of 10% compounded annually

C)

A stated rate of 10% compounded semi-annually

D)

A rate of 10% simple interest

14

You invest $1,000 at a continuously compounded rate of 10%. What is the investment worth after 3 years?

A)

$1,100.00

B)

$1,349.86

C)

$1,331.00

D)

$1,105.17

15

Your credit card charges interest of 1.5% per month. The company will quote you an APR of what?

A)

1.5%

B)

12%

C)

18%

D)

None of the above.

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