Chapter 4 Quiz_answer (1)

Chapter 4

Quiz

Financial Management

ID:______________ Name:________________ 

1. An annuity stream o cash lo! payments is a set o: A. le"el cash lo!s occurring each time perio# or a i$e# length o time. %. le"el %.  le"el cash lo!s occurring each time perio# ore"er. C. increasing C.  increasing cash lo!s occurring each time perio# or a i$e# length o time. D. increasing D.  increasing cash lo!s occurring each time perio# ore"er. &. ar'itrary &.  ar'itrary cash lo!s occurring each time perio# or no more than 1( years. ). *he interest rate e$presse# as i it !ere compoun#e# once per year is calle# the _____ rate. A. state# A.  state# interest %. compoun# %.  compoun# interest C. eecti"e annual D. perio#ic D.  perio#ic interest &. #aily &.  #aily interest +. ,hich o the ollo!ing statements concerning the eecti"e annual rate are correctI. ,hen maing inancial #ecisions/ you shoul# compare eecti"e annual rates rather than annual percentage rates. II. *he more re0uently interest is compoun#e#/ the higher the eecti"e annual rate. III. A 0uote# rate o 2 compoun#e# continuously has a higher eecti"e annual rate than i the rate !ere compoun#e# #aily. I3. ,hen 'orro!ing an# choosing !hich loan to accept/ you shoul# select the oer !ith the highest eecti"e annual rate. A. I A.  I an# II only %. I %.  I an# I3 only C. I/ II/ an# III only D. II/ D.  II/ III/ an# I3 only &. I/ &.  I/ II/ III/an# I3

4. Discounting cash lo!s in"ol"es A. #iscounting A.  #iscounting only those cash lo!s that occur at least 1( years in the uture. %. estimating %.  estimating only the cash lo!s that occur in the irst 4 years o a proect. C. multiplying C.  multiplying e$pecte# uture cash lo!s 'y the cost o capital. D. #iscounting all e$pecte# uture cash lo!s to relect the time "alue o money. &. taing &.  taing the cash #iscount oere# on tra#e merchan#ise. 5. *he present "alue o uture cash lo!s minus initial cost is calle#: A. the A.  the uture "alue o the proect. B. the net present "alue o the proect. C. the C.  the e0ui"alent sum o the in"estment. D. the D.  the initial in"estment ris e0ui"alent "alue. &. None &.  None o these. . *he state# rate o interest is 1(2. ,hich orm o compoun#ing !ill gi"e the highest eecti"e rate o interestA. annual A.  annual compoun#ing %. monthly %.  monthly compoun#ing C. #aily C.  #aily compoun#ing D. continuous compoun#ing &. It &.  It is impossi'le to tell !ithout no!ing the term o the loan. 6. I you ha"e a choice to earn simple interest on 71(/((( or three years at 82 or annually compoun# interest at 6.52 or three years !hich one !ill pay more an# 'y ho! muchA. 9imple A.  9imple interest 'y 75(.(( B. Compoun# interest 'y 7)).6 C. Compoun# C.  Compoun# interest 'y 715(.65 1

D. Compoun# interest 'y 715(.(( &. None o these.

8. A perpetuity #iers rom an annuity 'ecause: A. perpetuity payments "ary !ith the rate o inlation. %. perpetuity payments "ary !ith the maret rate o interest. C. perpetuity payments are "aria'le !hile annuity payments are constant. D. perpetuity payments ne"er cease. &. annuity payments ne"er cease. . Compoun# interest A. allo!s or the rein"estment o interest payments. %. #oes not allo! or the rein"estment o interest payments. C. is the same as simple interest. D. pro"i#es a "alue that is less than simple interest. &. %oth A an# D. 1(. A 2 preerre# stoc pays an annual #i"i#en# o 74.5(. ,hat is one share o this stoc !orth to#ayA. 7.41 %. 74.5( C. 75.(( D. 745.(( E. 75(.((

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