Finance Questions

You are comparing two investments, A and B, with unequal annual cash flows and varying numbers of years. Which one of these statements is correct regarding this comparison?A) If A has the higher net present value at one discount rate, then A will have the higher net present value at all other discount rates.B) If B has a higher net present value, then B will have the higher net future value at any point in time, given a stated discount rate.C) If B has a higher net future value at one discount rate, then B will have the higher net present value given any discount rate.D) The two projects cannot be compared since their time periods differ in length.E) The project with the greater number of years will have the higher present value.

You want to make a one-time deposit today that will increase in value to $100 at the end of this year. Which rate of interest will allow you to deposit the least amount today to reach this goal?A) 3.8%B) 2.6%C) 2.9%D) 3.6%E) 3.4%

The interest rate charged per period multiplied by the number of periods per year is called theA) effective annual rate.B) compound interest rate.C) periodic interest rate.D) annual percentage rate.E) daily interest rate.

By federal law, lenders must discloseA) the APR, excluding fees or other noninterest charges.B) the EAR, excluding fees or other noninterest charges.C) the APR, including fees and other noninterest charges.D) the EAR, including fees and other noninterest charges.E) both the APR and EAR, excluding fees and other charges.

A growing annuity is a set ofA) arbitrary cash flows occurring each time period for no more than 10 years.B) level cash flows occurring each time period forever.C) steadily increasing cash flows occurring each time period for a fixed number of periods.D) increasing cash flows occurring each time period forever.E) level cash flows occurring each time period for a fixed period of time.

Discounting cash flows involvesA) taking the cash discount offered on trade merchandise.B) estimating only the cash flows that occur in the first 4 years of a project.C) adjusting only those cash flows that occur at least 10 years in the future.D) multiplying expected future cash flows by the cost of capital.E) adjusting all expected future cash flows to their current value.

The effective annual rate (EAR) of a loan will increase ifA) the frequency of the interest rate compounding is decreased.B) the interest is changed from compound to simple interest at the same annual percentage rate (APR).C) the annual percentage rate (APR) is decreased.D) either the annual percentage rate (APR) or the compounding frequency is increased.E) the compounding of interest is changed from continuous compounding to daily compounding.

Which one of the following would have the greatest value assuming each has a Year 0 cash flow of zero and a Year 1 annual cash flow of $100? Assume a discount rate of 8 percent, compounded annually. Also, assume any growth rate is positive.A) PerpetuityB) AnnuityC) Growing perpetuityD) Growing annuityE) Growing perpetuity or growing annuity, as they would have equal values

Which one of the following will increase the present value of a finite stream of even cash flows? Assume a positive rate of return.A) Moving every cash flow one time period further into the futureB) Decreasing the amount of each cash flowC) Increasing the Time 2 cash flow by $100 and lowering the Time 3 cash flow by $100D) Moving the Time 1 cash inflow to Time 2E) Increasing the discount rate

The selection of an appropriate discount rate for a particular project is primarily dependent upon the project'sA) time to closure.B) initial cost.C) level of risk.D) starting date.E) expected dollar return.

Kate starts saving for retirement today and plans to make annual contributions into this retirement account. Which one of these is most apt to increase the total amount she has saved on the day she retires? Assume she earns a positive rate of return each year.A) Retiring at age 62 rather than age 66B) Decreasing the investment's average rate of returnC) Decreasing the amount she saves each yearD) Delaying her retirement by 1 yearE) Delaying any additions to her savings by 1 year

Investment options A and B are equally risky and have identical initial costs. Each investment will produce cash inflows of $20,000. Option A will pay $8,000 the first year followed by four annual payments of $3,000 each. Option B will pay five annual payments, starting in 1 year, of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive rate of return.A) Neither investment should be undertaken.B) Option A is the better investment.C) Option B has a higher net present value.D) Option B has a lower future value at Year 5.E) Both options are of equal value.

Which one of these statements related to the time value of money is correct? Assume a positive rate of interest.A) A dollar increases in value the further into the future it is received.B) The future value of an invested dollar is inversely related to the rate of interest.C) The present value of a dollar to be received in 1 year is directly related to the interest rate.D) A dollar received today is more valuable than a dollar received next month.E) A dollar invested today will increase in value in a linear manner if interest earned is reinvested.

Suppose a portfolio had an arithmetic average return of 8 percent for a 4-year period. Which one of these statements must be true regarding this portfolio for the period?A) At least one of the 4 years produced an annual rate of return of 8 percent.B) If the standard deviation of the portfolio is greater than zero, then the geometric average portfolio return is less than 8 percent.C) The standard deviation of the portfolio must be lower than the standard deviation of a comparable portfolio that had an arithmetic average return of 9 percent.D) If the standard deviation of the portfolio is zero, then the geometric average return must also be zero.E) The holding period return must be less than 8 percent.

On average, for the period 1926 to 2015A) U.S. Treasury bills had a negative risk premium.B) small-company stocks underperformed large-company stocks.C) large-company stocks had a higher risk premium than long-term corporate bonds.D) intermediate-term government bonds produced higher returns than long-term government bonds.E) large-company stocks had a higher risk premium than small-company stocks.

What percentage of the time should you expect to earn an annual rate of return that is within two standard deviations of the mean?A) 100%B) 95%C) 68%D) 99%E) 75%

The standard deviation for a set of stock returns can be calculated as theA) variance squared.B) positive square root of the variance.C) positive square root of the average return.D) average return divided by N minus one, where N is the number of returns.E) average squared difference between the actual return and the average return.

Which set of characteristics should you prefer in a stock if you desire the highest (least negative) rate of return assuming that you will earn a negative total return for the period?A) High-dividend, high standard deviationB) No dividend, high standard deviationC) High-dividend, low standard deviationD) Low-dividend, high standard deviationE) Low-dividend, low standard deviation

A review of annualized equity risk premiums by country for the period 1900 to 2010 shows thatA) country with the lowest standard deviation had the lowest equity risk premium.B) the standard deviation of returns was consistent among countries.C) the sharpe ratio for each country is equal.D) the United States had the highest risk premium of the countries listed.E) Sharpe ratios vary significantly among countries.

The geometric average is probably best applied to ________ performance.A) pastB) futureC) both past and futureD) neither past nor futureE) estimated