4-1ChapterFourAllocatingResourcesOverTimeThischaptercontains46multiple-choicequestions,18shortproblemsand9longerproblems.MultipleChoice1.________istheprocessofgoingfrompresentvaluetofuturevalue,whereas________isfindingthepresentvalueofsomefutureamount.(a)Discounting;compounding(b)Compounding;annualizing(c)Compounding;discounting(d)Discounting;leasingAnswer:(c)2.________referstotheinterestrateatwhichmoneyreceivedbeforetheendoftheplanninghorizoncanbereinvested.(a)Internalrate(b)Reinvestmentrate(c)Costofequity(d)CompoundinterestAnswer:(b)3.Thedifferencebetweenanimmediateannuityandanordinaryannuityis________.(a)thenumberofperiods(b)theamountofthepayments(c)theinterestrate(d)thetimingofthepaymentsAnswer:(d)4-24.ThepreferredstockofTavistockRealtyoffersacashdividendof$2.28peryearanditissellingatapriceof$110pershare.WhatistheyieldofTavistockRealtypreferredstock?(a)2.07%(b)2.12%(c)2.28%(d)48.25%Answer:(a)5.Considerthesituationwhereyouhavewona$10millionlotterytobereceivedin25annualequalpaymentsof$400,000.Whatwillhappentothepresentvalueofthesewinningsiftheinterestrateincreasesduringthenext25years?(a)itwillnotchange(b)itwillbeworthmore(c)itwillbeworthless(d)itcannotbedeterminedAnswer:(c)6.WhatistheeffectiveannualrateonabankaccountthathasAPRof8percentwithinterestcompoundedquarterly?(a)6.12%(b)8.24%(c)8.48%(d)17.17%Answer:(b)7.YoutakeoutaloanwithanAPRof10%withmonthlycompounding.Whatistheeffectiveannualrateonyourloan?(a)23.87%(b)21.6%(c)19.56%(d)18%Answer:(a)4-38.TheCFOofCyberHelpInc.has$250,000incashtodaythathewantstoinvest.Howmuchwillthisinvestmentbeworthinfouryearsifthecurrentinterestrateis8%?(a)$270,000(b)$330,000(c)$340,125(d)$342,150Answer:(c)9.Ifyoupurchasea$12,000certificateofdeposittodaywithanAPRof14%,withquarterlycompounding,whatwilltheCDbeworthwhenitmaturesin5years?(a)$20,846.99(b)$20,865.60(c)$23,104.97(d)$23,877.47Answer:(d)10.TheCFOofCyberChainInc.planstounleashamediacampaignthatisexpectedtocost$15millionfouryearsfromtoday.Howmuchcashshouldshesetasidetopayforthisifthecurrentinterestrateis13%?(a)$9.2million(b)$13.3million(c)$14.4million(d)$16.9millionAnswer:(a)11.TheNPVisameasureofhowmuchyour________wealthchangesasaresultofyourchoiceandiftheNPVis________itdoesnotpaytoundertakethatchoice.(a)future;negative(b)current;negative(c)current;positive(d)future;positiveAnswer:(b)4-412.The________istheratethatonecanearnsomewhereelseifonedidnotinvestintheprojectunderevaluation.(a)opportunitycostofcapital(b)costofdebt(c)costofequity(d)weightedaveragecostofcapitalAnswer:(a)13.Youaretryingtodecidewhetherornottobuyabondfor$990thatwillmakeonepaymentfor$1,050fouryearsfromtoday.Whatistheinternalrateofreturnonthebond’scashflows?(a)1.06%(b)1.48%(c)10.6%(d)14.8%Answer:(b)14.CalculatetheNPVofthefollowingcashflows:youinvest$3,000todayandreceive$300oneyearfromnow,$700twoyearsfromnow,and$1,100startingfouryearsfromnow.Assumethattheinterestrateis7%.(a)–$1,962.62(b)–$1,269.04(c)$1,269.04(d)$1,962.62Answer:(b)15.Aftereachpaymentofanamortizedloan,theoutstandingbalanceisreducedbytheamountofprincipalrepaid.Therefore,theportionofthepaymentthatgoestowardthepaymentofinterestis________thanthepreviousperiod’sinterestpaymentandtheportiongoingtowardrepaymentofprincipalis________thanthepreviousperiod’s.(a)greater;lower(b)lower;lower(c)greater;greater(d)lower;greaterAnswer:(d)4-516.Thepresentvalueofafutuream...
