Time Value of Money

Question 1

Someone is going to give you $5k in 1 year from today, interest rates are 2%, what is the present value of this future money?

Answer 1

$5k * 0.98 = $4900

Question 2

ROA =

Answer 2

= return on Assets = net income / Assets * 100%

Question 3

ROI =

Answer 3

Return on Investments = Net income / Investment * 100%

Question 4

ROE =

Answer 4

Return on Equity = Net Income / Stockholder’s Equity

Question 5

ROA / (1 - Debts/Assets) =

Answer 5

ROE

Question 6

If the interest rate goes up, present value goes

Answer 6

DOWN

one reason why stocks tend to go down when Fed discusses raising interest rates

Question 7

With simple PV, if time increases, then PV goes

Answer 7

DOWN

Question 8

PV of $1 =

Answer 8

1 / ( (1+r)^n )

Question 9

In these cases, lottery payouts, car loans, mortgages, anticipate using…

Answer 9

PV of Annuity

Question 10

Yearly Payment of a Loan =

Answer 10

= Amount of Loan / PVIFA = Yearly Principal + Interest Payment (P&I)

Question 11

The P&I payed per period on an amortized loan is…

Answer 11

constant

(Principal + Interest) - it will be the same each period

Question 12

Amortization: Amount of interest per period =

Answer 12

= Total outstanding amount of loan * APR / # of periods per year

Question 13

Truth in Lending Act did what

Answer 13

Banks must tell you total P&I you will owe over the lifetime of the loan up front, and not hide the information

Question 14

If you have a $45k loan, maturity of 5 years, 6% interest, what is the monthly P&I

Answer 14

PVIFA = 4.212
Annual P&I = $45000/4.212 = $10683.76
Monthly P&I = $830.31

Question 15

Which formula shows this breakdown:
ROA = Net Income / Assets =
Sales / Assets * Net Income / Sales = Assets Turnover * Profit Margin

Answer 15

DuPont Formula

Question 16

If Profit Margin is 3%, and you want an ROA of 18%, what do you need Assets Turnover to be?

Answer 16

ROA = Profit Margin * Asset Turnover

18% / 3% = 6 times = Asset Turnover

Question 17

Formula for Simple FV

Answer 17

FV = PV * (1+r)^n

Question 18

If you have a $100k in a CD, maturity of 5 years, APR = 4%, compounded quarterly, what is the FV at maturity?

Answer 18

FV = $100k * (Simple FV (1%, 20 periods) = 1.220 * $100k - $122,000

Question 19

When frequency of payment goes up, FV …

Answer 19

goes up

Question 20

Discount rate is…

Answer 20

the annual reduction rate on a future value, the inverse of the growth rate

Question 21

How long will it take you to double your money if you have a simple investment with a 9% interest rate?

Answer 21

Approximately 8 years

Question 22

What interest rate would you need to quadruple the amount of money in an account over 18 years?

Answer 22

approximately 8% (FVIF = 3.996 at 8 years)

Question 23

How much do you need to save for retirement if you want to withdraw $70k each year for 30 years. You have 40 years to save. Your account will accrue 4% interest after retirement, and can earn at 3%

Answer 23

1. PVIFA (4%, 30 years) = 17.292&raquo_space; 17.292 * $70k = $1,210,440 = amount you need at start of retirement
2. FVIFA (3%, 40 years) = 75.401
   FV = Payment * FVIFA&raquo_space; Payment = $1,210,440 / FVIFA = $16,053.36 annually

Question 24

Which crypto lost value and how much

Answer 24

BTC lost 10% of value from a Sunday to Monday, and has now fallen 54% of it’s record high

Question 25

The US national Debt is now ___, in 1980 is was __

Answer 25

$30 trillion | $1 trillion

Question 26

Lisa Cook was voted...

Answer 26

into the Federal Reserve Board by the Senate, she will be the first black woman on the board of the Fed

Question 27

Jet Blue is trying to buy ___ for $ per share

Answer 27

Spirit, $30

Question 28

_____ is selling 850 restaurants in Russia

Answer 28

Mcdonalds

Question 29

McDonalds was losing ____ monthly since March when it closed it's stores in ____

Answer 29

$55 million; Russia

Question 30

Amazon's stock price dropped from ___ in April to ____ in May

Answer 30

$3367 to $2142 > 36% drop

Question 31

Elon musk put his purchase deal of Twitter on hold until he got more info on ____. This ___ Twitter's stock price

Answer 31

spam bots | decreased (4%)

Question 32

The Dow Jones IA closed down to ___, the lowest closing level since ___

Answer 32

31490 points | March 2021

Question 33

Apple Revenue is getting a hit in Q2 with an _____ loss, due to ____

Answer 33

$8 billion; Covid

Question 34

Government employees and contractor wage set to increase to

Answer 34

$15/hr

Question 35

Government wants to add _____ charging stations to federal highways

Answer 35

550,000

Question 36

Debentures have a ___ interest rate

Answer 36

very high, because high risk to the creditor

Question 37

Because of what scandal, the CEO needs to review and sign the annual report released by companies

Answer 37

ENRON

Question 38

Exxon reported a $21 billion loss in 2020, but reported ____ in 2021

Answer 38

$24.3 billion profit

Question 39

With it's profit, Exxon is planning to

Answer 39

buy back it's own shares

Question 40

When a company announces they plan to buy back shares, it can

Answer 40

cause stock prices to increase | shows confidence in own company

Question 41

Buying back shares can....

Answer 41

save on dividend payments

Question 42

Paypal share price ___

Answer 42

``` dropped dramatically (down from 300 in Aug 2021 to less than 100 / share) ```

Question 43

Spirit and ____ are considering merging with ____ as the controlling interest. This would present an advantage of:

Answer 43

Frontier; Frontier; economies of scale

Question 44

Alphabet announced a ______ in order to ___

Answer 44

Stock Split | Make the stock more affordable

Question 45

Stock split is generally viewed ____ by the market and this happens

Answer 45

very positively | effective value goes up

Question 46

a stock split ____ impact shareholder's value

Answer 46

does not change [but there is a side effect of positive market view]

Question 47

The FED made an announcement to ____ which caused stock prices to go down. This is an example of ____

Answer 47

raise interest rates | macro environment effects

Question 48

A major tire company is buying Cooper's Tires at ____ and adding 75000 workers. This is an example of

Answer 48

2.8 Billion; | economies of scale

Question 49

How can a country defend it's currency in the international currency market

Answer 49

1. buy back it's own currency using "hard currencies" | 2. increase domestic interest rate

Question 50

Why is it hard to protect your currency by buying it back in "common stock currencies" ?

Answer 50

most countries do not have enough foreign currencies to support their maternal currency. It's a bandaid

Question 51

SWIFT is

Answer 51

Society for Worldwide interbank financial Telecommunication

Question 52

SWIFT was established in

Answer 52

1973, Brussels

Question 53

Goal of SWIFT was to:

Answer 53

Transfer of money between banks to be done accurately, efficiently, securely, cheaply, reliable

Question 54

About how many SWIFT transactions are there per day?

Answer 54

40 million

Question 55

The rate a country would increase to try and defend it's currency is the

Answer 55

Discount rate, rate that its central bank charges its member banks

Question 56

Examples of common stock currencies

Answer 56

Dollar, euro, pound, swiss franc, yen, yuan