Multiple Choice Quiz
Multiple Choice Quiz
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 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.