Bài test tiếng Anh ngành ngân hàng và đáp án phần 6

Calculating the present and future values of multiple cash flows is relevant for Level of Difficulty: Easy 3.. In computing the present and future value of multiple cash flows, each cash

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Format: True/False

Learning Objective: LO 1

Level of Difficulty: Easy

1 Calculating the present and future values of multiple cash flows is relevant only for individual investors.

2 Calculating the present and future values of multiple cash flows is relevant for

3 In computing the present and future value of multiple cash flows, each cash flow is discounted or compounded at a different rate.

4 The present value of multiple cash flows is greater than the sum of those cash flows.

5 When you pay the same amount every month as your insurance premium for a term life

policy for a period of five years, the stream of cash flows is called a perpetuity.

A) True

B) False

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6 When you pay the same amount every month on your car loan for a period of three years, the stream of cash flows is called an annuity.

7 In today's financial markets, the best example of a perpetuity is the common stock issued by firms

8 Since the issuers of preferred stock promise to pay investors a fixed dividend, usually quarterly, forever, these are the most important perpetuities in the financial markets

9 The present value of a perpetuity is the promised constant cash payment divided by the

interest rate (i).

A) True

B) False

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11 In an annuity due, cash flows occur at the beginning of each period

Level of Difficulty: Medium

12 The lease payments by a business on a warehouse rental are an example of an annuity due

13 The present value of an annuity due is less than the present value of an ordinary

14 The present value of an annuity due is equal to the present value of an ordinary annuity.A) True

B) False

Ans: B

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15 The future value of an annuity due is greater than the future value of an ordinary

16 The future value of an annuity due is equal to the future value of an ordinary annuity.A) True

B) False

Ans: B

Format: True/False

17 Cash flow streams that increase at a constant rate over time are called growing

annuities or growing perpetuities.

18 A fertilizer manufacturing company enters into a contract with a county parks and recreation department that calls for the company to sell 10 percent more of its best lawnfeed every year for the next five years If they also agree to maintain the total price as constant over the contract period, this growth in revenue is an example of a growing

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19 You have received news about an inheritance that will pay you $5,000 next year

Beginning the following year, your inheritance will increase by 5 percent every year forever This is a growing perpetuity.

20 Trey Hughes opened a pizza place last year He expects to increase his revenue from last year by 7 percent every year for the next 10 years This is an example of a growing annuity

21 The APR is the annualized interest rate using compound interest

22 The APR is defined as the simple interest charged per period multiplied by the number

of periods per year

A) True

B) False

Ans: A

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23 The correct way to annualize an interest rate is to compute the effective annual interest rate.

24 The correct way to annualize an interest rate is to compute the annual percentage rate (APR)

25 The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account

26 The EAR is the true cost of borrowing and lending

A) True

B) False

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27 The quoted interest rate is by convention a simple annual interest rate, such as the

28 The quoted interest rate is by definition a simple annual interest rate, such as the EAR.

29 The Truth-in-Lending Act and the Truth-in-Savings Act require by law that the APR

be disclosed on all consumer loans and savings plans and that it be prominently

displayed on advertising and contractual documents

30 Only the APR or some other quoted rate should be used as the interest rate factor for present or future value calculations

A) True

B) False

Ans: B

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31 To solve future value problems with multiple cash flows involves which of the following steps?

A) First, draw a time line to make sure that each cash flow is placed in the correct time period

B) Second, calculate the future value of each cash flow for its time period

C) Third, add up the future values

D) All of the above are necessary steps.

Ans: D

Format: Multiple Choice

32 Which one of the following steps is NOT involved in solving future value problems?

B) Second, discount each cash flow for its time period.

C) Third, add up the values

D) All of the above are necessary steps

Ans: B

33 To solve present value problems with multiple cash flows involves which of the following steps?

B) Second, calculate the present value of each cash flow for its time period

C) Third, add up the present values

D) All of the above are necessary steps.

Ans: D

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34 Which one of the following steps is NOT involved in solving present value problems?

B) Second, compound each cash flow for its time period.

C) Third, add up the values

D) All of the above are necessary steps

Ans: B

Level of Difficulty: easy

35 Calculating the present and future values of multiple cash flows is relevant

A) for businesses only

B) for individuals only

C) for both individuals and businesses.

D) none of the above

Ans: C

36 In computing the present and future value of multiple cash flows,

A) each cash flow is discounted or compounded at the same rate.

B) each cash flow is discounted or compounded at a different rate

C) earlier cash flows are discounted at a higher rate

D) later cash flows are discounted at a higher rate

Ans: A

37 In computing the present and future value of multiple cash flows,

A) earlier cash flows are discounted at a lower rate

B) each cash flow is discounted or compounded at the same rate.

C) earlier cash flows are discounted at a higher rate

Ans: B

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38 The present value of multiple cash flows is

A) greater than the sum of the cash flows

B) equal to the sum of all the cash flows

C) less than the sum of the cash flows.

Ans: C

39 The future value of multiple cash flows is

A) greater than the sum of the cash flows.

B) equal to the sum of all the cash flows

C) less than the sum of the cash flows

Ans: A

40 If your investment pays the same amount at the end of each year for a period of six

years, the cash flow stream is called

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42 If your investment pays the same amount at the end of each year forever, the cash

flow stream is called

43 Cash flows associated with annuities are considered to be

A) an uneven cash flow stream

B) a cash flow stream of the same amount (a constant cash flow stream).

C) a mix of constant and uneven cash flow streams

Ans: B

44 Which ONE of the following statements is true about amortization?

A) Amortization refers to the way the borrowed amount (principal) is paid down over the life

D) All of the above are true.

Ans: D

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45 Which one of the following statements is NOT true about amortization?

A) Amortization refers to the way the borrowed amount (principal) is paid down over the life

Ans: C

46 Which one of the following statements is true about amortization?

A) With an amortized loan, a bigger proportion of each month's payment goes toward interest in the early periods.

B) With an amortized loan, a bigger proportion of each month's payment goes toward interest in the later periods

C) With an amortized loan, a smaller proportion of each month's payment goes toward interest in the early periods

D) None of the above

Ans: A

47 The annuity transformation method is used to transform

A) a present value annuity to a future value annuity

B) a present value annuity to an annuity due

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48 A firm receives a cash flow from an investment that will increase by 10 percent

annually for an infinite number of years This cash flow stream is called

49 Your investment in a small business venture will produce cash flows that increase by 15percent every year for the next 25 years This cash flow stream is called

50 Which one of the following statements is TRUE about the effective annual rate (EAR)?

A) The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account

B) The EAR conversion formula accounts for the number of compounding periods and, thus,effectively adjusts the annualized interest rate for the time value of money

C) The EAR is the true cost of borrowing and lending

D) All of the above are true.

Ans: D

51 The true cost of borrowing is the

A) annual percentage rate

B) effective annual rate.

C) quoted interest rate

D) periodic rate

Ans: B

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52 The true cost of lending is the

A) annual percentage rate

B) effective annual rate.

C) quoted interest rate

Ans: B

53 Which one of the following statements is NOT true?

A) The APR is the appropriate rate to do present and future value calculations.

B) The EAR is the appropriate rate to do present and future value calculations

C) The EAR is the true cost of borrowing and lending

D) The EAR takes compounding into account

Ans: A

A) The Truth-in-Lending Act was passed by Congress to ensure that the true cost of credit

was disclosed to consumers

B) The Truth-in-Savings Act was passed to provide consumers an accurate estimate of the

return they would earn on an investment

C) The above two pieces of legislation require by law that the APR be disclosed on all consumer loans and savings plans

D) All of the above are true statements.

Ans: D

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A) The correct way to annualize an interest rate is to compute the effective annual interest rate (EAR)

B) The APR is the annualized interest rate using simple interest

C) The correct way to annualize an interest rate is to compute the annual percentage rate (APR).

D) You can find the interest rate per period by dividing the quoted annual rate by the number

of compounding periods

Ans: C

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56 FV of multiple cash flows: Chandler Corp is expecting a new project to start

producing cash flows, beginning at the end of this year They expect cash flows to be asfollows:

$643,547 $678,214 $775,908 $778,326 $735,444

If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.)A) $3,889,256

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57 FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows

starting at the end of the year—$113,245, $132,709, $141,554, and $180,760 If their opportunity cost is 9.6 percent, find the future value of these cash flows (Round to the

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58 FV of multiple cash flows: Tariq Aziz will receive from his investment cash flows of

$3,125, $3,450, and $3, 800 If he can earn 7.5 percent on any investment that he

makes, what is the future value of his investment cash flows at the end of three years?

(Round to the nearest dollar.)

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59 FV of multiple cash flows: Shane Matthews has invested in an investment that will

pay him $6,200, $6,450, $7,225, and $7,500 over the next four years If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.)

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60 FV of multiple cash flows: International Shippers, Inc., have forecast earnings of $1,

233,400, $1,345,900, and $1,455,650 for the next three years What is the future value

of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.)

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61 PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest

rate of 5.75 percent He expects to receive $625, $650, $700, and $800 at the end of the next four years as complete repayment of the loan with interest How much did he loan out to his brother? (Round to the nearest dollar.)

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62 PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8

percent and will repay the loan with interest over the next five years Their scheduled payments, starting at the end of the year are as follows—$450,000, $560,000,

$750,000, $875,000, and $1,000,000 What is the present value of these payments? (Round to the nearest dollar.)

$416,666.67 $480,109.74 $595,374.18 $643,151.12 $680,583.20

=$2,815,884.91

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63 PV of multiple cash flows: Hassan Ali has made an investment that will pay him

$11,455, $16,376, and $19,812 at the end of the next three years His investment was tofetch him a return of 14 percent What is the present value of these cash flows? (Round

to the nearest dollar.)

$10,048.25 $12, 600.80 $13,372.54

=$36,021.58

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64 PV of multiple cash flows: Ajax Corp is expecting the following cash flows—

$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years If the company’s opportunity cost is 15 percent, what is the present value of these cash flows?(Round to the nearest dollar.)

$68,695.65 $84,688.09 $107,832.66 $48,027.27 $120,316.77

=$429, 560.45

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65 PV of multiple cash flows: Pam Gregg is expecting cash flows of $50,000, $75,000,

$125,000, and $250,000 from an inheritance over the next four years If she can earn 11percent on any investment that she makes, what is the present value of her inheritance? (Round to the nearest dollar.)

$45,045.05 60,871.68 $91,398.92 $164,682.74

=$361,998.39

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66 Present value of an annuity: Transit Insurance Company has made an investment in

another company that will guarantee it a cash flow of $37,250 each year for the next five years If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? (Round to the nearest dollar.)

Required rate of return = 15%

Present value of investment = PVA5

5

11(1 )

11(1.15)

0.15

n n

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