TestBank CHAP4 Corporate Finance by Ross 10th

Chapter Câu hỏi số An annuity stream of cash flow payments is a set of: ● A.-level cash flows occurring each time period for a fixed length of time ● B -level cash flows occurring each time period forever ● C -increasing cash flows occurring each time period for a fixed length of time ● D -increasing cash flows occurring each time period forever ● E -arbitrary cash flows occurring each time period for no more than 10 years Câu hỏi số Annuities where the payments occur at the end of each time period are called _, whereas _ refer to annuity streams with payments occurring at the beginning of each time period ● A -ordinary annuities; early annuities ● B -late annuities; straight annuities ● C -straight annuities; late annuities ● D -annuities due; ordinary annuities ● E.-ordinary annuities; annuities due Câu hỏi số An annuity stream where the payments occur forever is called a(n): ● A -annuity due ● B -indemnity ● C.-perpetuity ● D -amortized cash flow stream ● E -amortization table Câu hỏi số The interest rate expressed in terms of the interest payment made each period is called the _ rate ● A -stated annual interest ● B -compound annual interest ● C -effective annual interest ● D -periodic interest ● E -daily interest Câu hỏi số The interest rate expressed as if it were compounded once per year is called the _ rate ● A -stated interest ● B -compound interest ● C -effective annual ● D -periodic interest ● E -daily interest Câu hỏi số The interest rate charged per period multiplied by the number of periods per year is called the _ rate ● A -effective annual ● B -annual percentage ● C -periodic interest ● D -compound interest ● E -daily interest Câu hỏi số Paying off long-term debt by making installment payments is called: ● A -foreclosing on the debt ● B -amortizing the debt ● C -funding the debt ● D -calling the debt ● E -None of these Câu hỏi số You are comparing two annuities which offer monthly payments for ten years Both annuities are identical with the exception of the payment dates Annuity A pays on the first of each month while annuity B pays on the last day of each month Which one of the following statements is correct concerning these two annuities? ● A -Both annuities are of equal value today ● B -Annuity B is an annuity due ● C -Annuity A has a higher future value than annuity B ● D.-Annuity B has a higher present value than annuity A ● E -Both annuities have the same future value as of ten years from today Câu hỏi số You are comparing two investment options The cost to invest in either option is the same today Both options will provide you with $20,000 of income Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each Option B pays five annualpayments of $4,000 each Which one of the following statements is correct given these two investment options? ● A -Both options are of equal value given that they both provide $20,000 of income ● B -Option A is the better choice of the two given any positive rate of return ● C -Option B has a higher present value than option A given a positive rate of return ● D -Option B has a lower future value at year than option A given a zero rate of return ● E -Option A is preferable because it is an annuity due Câu hỏi số 10 You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects? I Both projects have the same future value at the end of year 4, given a positive rate of return II Both projects have the same future value given a zero rate of return III Both projects have the same future value at any point in time, given a positive rate of return IV Project A has a higher future value than project B, given a positive rate of return ● A -II only ● B -IV only ● C -I and III only ● D -II and IV only ● E -I, II, and III only Câu hỏi số 11 A perpetuity differs from an annuity because: ● A -perpetuity payments vary with the rate of inflation ● B -perpetuity payments vary with the market rate of interest ● C -perpetuity payments are variable while annuity payments are constant ● D -perpetuity payments never cease ● E -annuity payments never cease Câu hỏi số 12 Which one of the following statements concerning the annual percentage rate is correct? ● A -The annual percentage rate considers interest on interest ● B -The rate of interest you actually pay on a loan is called the annual percentage rate ● C -The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly ● D -When firms advertise the annual percentage rate they are violating U.S truth-inlending laws ● E -The annual percentage rate equals the effective annual rate when the rate on an account isdesignated as simple interest Câu hỏi số 13 Which one of the following statements concerning interest rates is correct? ● A -The stated rate is the same as the effective annual rate ● B -An effective annual rate is the rate that applies if interest were charged annually ● C -The annual percentage rate increases as the number of compounding periods per year increases ● D -Banks prefer more frequent compounding on their savings accounts ● E -For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate Câu hỏi số 14 Which of the following statements concerning the effective annual rate are correct? I When making financial decisions, you should compare effective annual rates rather than annual percentage rates II The more frequently interest is compounded, the higher the effective annual rate III A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily IV When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate ● A -I and II only ● B -I and IV only ● C -I, II, and III only ● D -II, III, and IV only ● E -I, II, III, and IV Câu hỏi số 15 The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as: ● A -.09^e - ● B -e^.09 × q ● C -e × (1 + 09) ● D -e^.09 - ● E -(1 + 09)^q Câu hỏi số 16 The time value of money concept can be defined as: ● A -the relationship between the supply and demand of money ● B -the relationship between money spent versus money received ● C -the relationship between a dollar to be received in the future and a dollar today ● D -the relationship between interest rate stated and amount paid ● E -None of these Câu hỏi số 17 Discounting cash flows involves: ● A -discounting only those cash flows that occur at least 10 years in the future ● B -estimating only the cash flows that occur in the first years of a project ● C -multiplying expected future cash flows by the cost of capital ● D -discounting all expected future cash flows to reflect the time value of money ● E -taking the cash discount offered on trade merchandise Câu hỏi số 18 Compound interest: ● A -allows for the reinvestment of interest payments ● B -does not allow for the reinvestment of interest payments ● C -is the same as simple interest ● D -provides a value that is less than simple interest ● E -Both allows for the reinvestment of interest payments and provides a value that is less than simpleinterest Câu hỏi số 19 An annuity: ● A -is a debt instrument that pays no interest ● B -is a stream of payments that varies with current market interest rates ● C -is a level stream of equal payments through time ● D -has no value ● E -None of these Câu hỏi số 20 The stated rate of interest is 10% Which form of compounding will give the highest effective rate of interest? ● A -annual compounding ● B -monthly compounding ● C -daily compounding ● D -continuous compounding (interest componded continously rather than at fixed intervals) ● E -It is impossible to tell without knowing the term of the loan Câu hỏi số 21 The present value of future cash flows minus initial cost is called: ● A -the future value of the project ● B -the net present value of the project ● C -the equivalent sum of the investment ● D -the initial investment risk equivalent value ● E -None of these Câu hỏi số 22 -Find the present value of $5,325 to be received in one period if the rate is 6.5% ● A -$5,000.00 ● B -$5,023.58 ● C -$5,644.50 ● D -$5,671.13 ● E -None of these Câu hỏi số 23 -If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at 7.5% for three years which one will pay more and by how much? ● A -Simple interest by $50.00 ● B -Compound interest by $22.97 ● C -Compound interest by $150.75 ● D -Compound interest by $150.00 ● E -None of these Câu hỏi số 24 -Bradley Snapp has deposited $6,000 in a guaranteed investment account with a promised rate of 6% compounded annually He plans to leave it there for full years when he will make a down payment on a car after graduation How much of a down payment will he be able to make? ● A -$2,397.00 ● B -$3,288.00 ● C -$6,321.32 ● D -$7,574.86 ● E -$8,857.59 Câu hỏi số 25 -Your parents are giving you $100 a month for four years while you are in college At a 6% discount rate, what are these payments worth to you when you first start college? ● A -$3,797.40 ● B -$4,167.09 ● C -$4,198.79 ● D -$4,258.03 ● E -$4,279.32 Câu hỏi số 26 -You just won the lottery! As your prize you will receive $1,200 a month for 100 months If you can earn 8% on your money, what is this prize worth to you today? ● A -$87,003.69 ● B -$87,380.23 ● C -$87,962.77 ● D -$88,104.26 ● E -$90,723.76 Câu hỏi số 27 -Todd is able to pay $160 a month for five years for a car If the interest rate is 4.9%, how much can Todd afford to borrow to buy a car? ● A -$6,961.36 ● B -$8,499.13 ● C -$8,533.84 ● D -$8,686.82 ● E -$9,588.05 Câu hỏi số 28 -You are the beneficiary of a life insurance policy The insurance company informs you that you have two options for receiving the insurance proceeds You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years You can earn 6.5% on your money Which option should you take and why? ● A -You should accept the payments because they are worth $56,451.91 today ● B -You should accept the payments because they are worth $56,523.74 today ● C -You should accept the payments because they are worth $56,737.08 today ● D -You should accept the $50,000 because the payments are only worth $47,757.69 today ● E -You should accept the $50,000 because the payments are only worth $47,808.17 today Câu hỏi số 29 -The preferred stock of ABC Co offers an 8.4% rate of return The stock is currently priced at $50.00 per share What is the amount of the annual dividend? Trả lời ● A -$2.10 ● B -$4.20 ● C -$5.00 ● D -$6.40 ● E -$8.60 Câu hỏi số 87 -Your credit card company charges you 1.5% per month What is the annual percentage rate on your account? Trả lời ● A -12.00% ● B -15.00% ● C -15.39% ● D -18.00% ● E -19.56% Câu hỏi số 88 -What is the annual percentage rate on a loan with a stated rate of 2% per quarter? Trả lời ● A -2.00% ● B -2.71% ● C -4.04% ● D -8.00% ● E -8.24% Câu hỏi số 89 -You are paying an effective annual rate of 13.8% on your credit card The interest is compounded monthly What is the annual percentage rate on your account? Trả lời ● A -11.50% ● B -12.00% ● C -13.00% ● D -13.80% ● E -14.71% Câu hỏi số 90 -What is the effective annual rate if a bank charges you 7.64% compounded quarterly? Trả lời ● A -7.79% ● B -7.86% ● C -7.95% ● D -7.98% ● E -8.01% Câu hỏi số 91 -Your credit card company quotes you a rate of 14.9% Interest is billed monthly What is the actual rate of interest you are paying? Trả lời ● A -13.97% ● B -14.90% ● C -15.48% ● D -15.96% ● E -16.10% Câu hỏi số 92 -Mr Miser loans money at an annual rate of 21% Interest is compounded daily What is the actual rate Mr Miser is charging on his loans? Trả lời ● A -22.97% ● B -23.08% ● C -23.21% ● D -23.36% ● E -23.43% Câu hỏi số 93 -You are considering two loans The terms of the two loans are equivalent with the exception of the interest rates Loan A offers a rate of 7.45% compounded daily Loan B offers a rate of 7.5% compounded semi-annually Loan _ is the better offer because Trả lời ● A -A; you will pay less interest ● B -A; the annual percentage rate is 7.45% ● C -B; the annual percentage rate is 7.64% ● D -B; the interest is compounded less frequently ● E -B; the effective annual rate is 7.64% Câu hỏi số 94 -You have $2,500 that you want to use to open a savings account You have found five different accounts that are acceptable to you All you have to now is determine which account you want to use such that you can earn the highest rate of interest possible Which account should you use based upon the annual percentage rates quoted by each bank? Trả lời ● A -Account A ● B -Account B ● C -Account C ● D -Account D ● E -Account E Câu hỏi số 95 -What is the effective annual rate of 14.9% compounded continuously? Trả lời ● A -15.96% ● B -16.01% ● C -16.05% ● D -16.07% ● E -16.17% Câu hỏi số 96 -What is the effective annual rate of 9.75% compounded continuously? Trả lời ● A -9.99% ● B -10.11% ● C -10.24% ● D -10.28% ● E -10.30% Câu hỏi số 97 -The Smart Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.9 annual percentage rate What is the maximum rate the bank can actually earn based on the quoted rate? Trả lời ● A -7.90% ● B -8.18% ● C -8.20% ● D -8.22% ● E -8.39% Câu hỏi số 98 -You are going to loan your friend $1,000 for one year at a 5% rate of interest How much additional interest can you earn if you compound the rate continuously rather than annually? Trả lời ● A -$.97 ● B -$1.09 ● C -$1.27 ● D -$1.36 ● E -$1.49 Câu hỏi số 99 -Today you earn a salary of $28,500 What will be your annual salary fifteen years from now if you earn annual raises of 3.5%? Trả lời ● A -$47,035.35 ● B -$47,522.89 ● C -$47,747.44 ● D -$48,091.91 ● E -$48,201.60 Câu hỏi số 100 -You hope to buy your dream house six years from now Today your dream house costs $189,900 You expect housing prices to rise by an average of 4.5% per year over the next six years How much will your dream house cost by the time you are ready to buy it? Trả lời ● A -$240,284.08 ● B -$246,019.67 ● C -$246,396.67 ● D -$246,831.94 ● E -$247,299.20 Câu hỏi số 101 -Your grandmother invested one lump sum 17 years ago at 4.25% interest Today, she gave you the proceeds of that investment which totaled $5,539.92 How much did your grandmother originally invest? Trả lời ● A -$2,700.00 ● B -$2,730.30 ● C -$2,750.00 ● D -$2,768.40 ● E -$2,774.90 Câu hỏi số 102 -You would like to give your daughter $40,000 towards her college education thirteen years from now How much money must you set aside today for this purpose if you can earn 6.3% on your funds? Trả lời ● A -$17,750.00 ● B -$17,989.28 ● C -$18,077.05 ● D -$18,213.69 ● E -$18,395.00 Câu hỏi số 103 -One year ago, you invested $3,000 Today it is worth $3,142.50 What rate of interest did you earn? Trả lời ● A -4.63% ● B -4.68% ● C -4.70% ● D -4.73% ● E -4.75% Câu hỏi số 104 -Forty years ago, your father invested $2,500 Today that investment is worth $107,921 What is the average rate of return your father earned on his investment? Trả lời ● A -8.50% ● B -9.33% ● C -9.50% ● D -9.87% ● E -9.99% Câu hỏi số 105 -You want to have $10,000 saved ten years from now How much less you have to deposit today to reach this goal if you can earn 6% rather than 5% on your savings? Trả lời ● A -$555.18 ● B -$609.81 ● C -$615.48 ● D -$928.73 ● E -$1,046.22 Câu hỏi số 106 -You have deposited $1,500 in an account that promises to pay 8% compounded quarterly for the next five years How much will you have in the account at the end? Trả lời ● A -$1,598.33 ● B -$2,203.99 ● C -$2,228.92 ● D -$6,991.44 ● E -None of these Câu hỏi số 107 -What is the future value of investing $9,000 for years at a continuously compounded rate of 11%? Trả lời ● A -$15,930.00 ● B -$18,685.44 ● C -$19,369.83 ● D -$19,437.90 ● E -None of these Câu hỏi số 108 -What is the future value of investing $3,000 for 3/4 year at a continuously compounded rate of 12%? Trả lời ● A -$3,163 ● B -$3,263 ● C -$3,283 ● D -$3,287 ● E -$3,317 Câu hỏi số 109 -Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6% compounded monthly? Trả lời ● A -$5,293 ● B -$5,345 ● C -$5,352 ● D -$5,362 ● E -$6,183 Câu hỏi số 109 -Which of the following amounts is closest to the end value of investing $5,000 for 14 months at a stated annual interest rate of 6% compounded monthly? Trả lời ● A -$5,293 ● B -$5,345 ● C -$5,352 ● D -$5,362 ● E -$6,183 Câu hỏi số 111 -Which of the following amounts is closest to the end value of investing $7,500 for 2.5 years at an effective annual interest rate of 12.36% Interest is compounded semiannually Trả lời ● A -$7,531 ● B -$8,427 ● C -$9,469 ● D -$9,818 ● E -$10,037 Câu hỏi số 112 -If the stated rate of interest is 12% and it is compounded monthly, what is the effective annual interest rate? Trả lời ● A -12.00% ● B -12.25% ● C -12.46% ● D -12.68% ● E -12.92% Câu hỏi số 113 -What is the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%? Trả lời ● A -$17,951 ● B -$18,480 ● C -$18,658 ● D -$18,669 ● E -$19,218 Câu hỏi số 114 -Thornton will receive an inheritance of $500,000 three years from now Thorton's discount rate is 10% compounded semiannually Which of the following values is closest to the amount that Thornton should accept today for the right to his inheritance? Trả lời ● A -$373,108 ● B -$375,657 ● C -$665,500 ● D -$670,048 ● E -None of these is within $10 of the correct answer Câu hỏi số 115 -A mortgage instrument pays $1.5 million at the end of each of the next two years An investor has an alternative investment with the same amount of risk that will pay interest at 8% compounded semiannually Which of the following amounts is closest to what the investor should pay for the mortgage instrument? Trả lời ● A -$1,386,834 ● B -$1,388,889 ● C -$2,674,897 ● D -$2,669,041 ● E -$3,854,512 Câu hỏi số 116 -You are to receive $75 per year indefinitely The market rate of interest for these types of payments is 8% The price you would pay for this stream is: Trả lời ● A -$9.375 ● B -$81.00 ● C -$93.75 ● D -$937.50 ● E -None of these Câu hỏi số 117 -Aunt Clarisse has promised to leave you an annuity that will pay $60 next year and grow at an annual rate of 4% The payments are expected to go on indefinitely and the interest rate is 9% What is the value of the growing perpetuity? Trả lời ● A -$667 ● B -$693 ● C -$1,200 ● D -$1,248 ● E -None of these Câu hỏi số 118 -A court settlement awarded an accident victim four payments of $50,000 to be paid at the end of each of the next four years Using a discount rate of 4%, calculate the present value of the annuity Trả lời ● A -$173,255 ● B -$178,495 ● C -$181,495 ● D -$184,095 ● E -$200,000 Câu hỏi số 119 -What is the present value of 10 annual payments of $500 at a discount rate of 12%? Trả lời ● A -$1,332 ● B -$1,761 ● C -$1,840 ● D -$2,825 ● E -$3,040 Câu hỏi số 120 -An S&L provides a loan with 15 yearly repayments of $8,000 with the first payment beginning immediately Which of the following amounts comes closest to the present value of the loan if the interest rate is 7%? Trả lời ● A -$72,863 ● B -$77,964 ● C -$115,648 ● D -$120,000 ● E -Not enough information is given to determine the answer Câu hỏi số 121 -The great, great grandparents of one of your classmates sold their factory to the government 104 years ago for $150,000 If these proceeds had been invested at 6%, how much would this legacy be worth today? Assume annual compounding Trả lời ● A -$936,000.00 ● B -$1,086,000.00 ● C -$60,467,131.54 ● D -$60,617,131.54 ● E -$64,254,159.44 Câu hỏi số 122 -If a business takes out a $10,000, year, 12% loan, the annual payment is: Trả lời ● A -$1,976.38 ● B -$2,000.00 ● C -$2,111.78 ● D -$2,191.17 ● E -$2,456.54 Câu hỏi số 123 -If a business takes out a $10,000, year, 12% loan, the decrease in principal in year is: (assume annual payments) Trả lời ● A -$991.17 ● B -$1,976.38 ● C -$1,200.00 ● D -$2,191.17 ● E -$2,456.54 Câu hỏi số 124 -If a student borrows $20,000 to start a business as a year, 10% loan, the annual payment is Trả lời ● A -$2,000.00 ● B -$3,275.95 ● C -$4,000.00 ● D -$5,275.95 ● E -None of these ... which one will pay more and by how much? ● A -Simple interest by $50.00 ● B -Compound interest by $22.97 ● C -Compound interest by $150.75 ● D -Compound interest by $150.00 ● E -None of these... ● D -$9,399.18 ● E -$9,413.67 Amount financed = $1,200,000 x (1 - .2) = $960,000 Câu hỏi số 46 -You estimate that you will have $24,500 in student loans by the time you graduate The interest... house costs $189,900 You expect housing prices to rise by an average of 4.5% per year over the next six years How much will your dream house cost by the time you are ready to buy it? Trả lời ● A -$240,284.08