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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.





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