Corporate Finance Chapter 9

Question 1

A dollar today is more than a dollar to be received in the future because:
A)Risk of nonpayment in the future
B)the dollar can be invested today and earn interest
C)inflation will reduce purchasing power of a future dollar
D)None of the other choices

Answer 1

A dollar today is more than a dollar to be received in the future because:

B)the dollar can be invested today and earn interest

Question 2

If you we’re to put $1000 in the bank at 6% interest each year for the next 10 years, which table would you see to find the ending balance in your account?

A) present value of $1
B) future value of $1
C)present value of an annuity of $1
D) compound sum of an annuity of $1

Answer 2

If you we’re to put $1000 in the bank at 6% interest each year for the next 10 years, which table would you see to find the ending balance in your account?

D) compound sum of an annuity of $1

Question 3

Under what conditions must a distinction be made between money to be received today and money to be received in the future?
A) a period of recession
B) when idle money can earn a positive return
C) when there is no risk of nonpayment in the future
D) when current interest rates are different from expected future rates

Answer 3

Under what conditions must a distinction be made between money to be received today and money to be received in the future?

B) when idle money can earn a positive return

Question 4

You are to receive $12,000 at the end of 5 years. The available Yeild on investment is 6%. Which table would you use to determine the value of that sum today?

A) present value of an annuity
B) future value of an annuity
C) present value of $1
D) compound sum of $1

Answer 4

C) present value of $1

Question 5

As the interest rates increases, the present value of an amount to be received at the end of a fixed period

A) increases
B) decreases
C) remains the same
D) not enough information to tell

Answer 5

As the interest rates increases, the present value of an amount to be received at the end of a fixed period

B) decreases

Question 6

As the time period until receipt increases, the present value of an amount at a fixed interest rate

A) decreases
B) remains the same
C) increases
D) not enough information to tell

Answer 6

As the time period until receipt increases, the present value of an amount at a fixed interest rate

A) decreases