Calculating the present value of a future sum

Calculating the present value of a future sum

Subject: Business    / Finance
Question
QUESTION 1

Calculating the present value of a future sum is referred to by which of the following?
A.    Adjusting
B.    Reverting
C.    Discounting
D.    Compounding

2.5 points

QUESTION 2

What is today’s value of a $1000 par value bond that has a 5% coupon payment with interest paid semi-annually, which has 3 years until maturity. The bond is priced to yield at 8%?
A.

$921.37
B.

$943.37
C.

$1051.37

2.5 points

QUESTION 3

You want to save for a trip to Cancun 3 years from now when you graduate. Assuming a 6 annual interest rate (compounded annually), how much must you deposit today to have exactly 1,843.87 dollars to take your trip when you graduate?

2.5 points

QUESTION 4

You decide to deposit 1,355.14 dollars in an account that earns 8 percent annual interest (compounded annually). How much is in the account 16 years from now?

2.5 points

QUESTION 5

You want to buy an used car 4 years from now when you graduate. Assuming a 6 annual interest rate (compounded annually), how much must you deposit today to have exactly 2,282.98 dollars to purchase the car when you graduate?

2.5 points

QUESTION 6

Individual and small investor can also do stealth trading

True

False

2.5 points

QUESTION 7

The Future value equation is
A.

FV =PV(1+i)n
B.

FV = PV(1+i)n
C.

FV = PV(1-i)n
D.

FV =PV(1 x i)n

2.5 points

QUESTION 8

What is the effective annual interest rate on an account that has a 3.12 percent annual interest rate and is compounded monthly? (enter your response as a percent excluding the percentage sign, i.e. 6.20 for 6.2%)

2.5 points

QUESTION 9

How do you know whether a company is overvalued?
A.

When PEG ratio is < 1 then the company is overvalued
B.

When PEG ratio is > 1 then the company is overvalued
C.

When PEG ratio is = 0 then the company is overvalued

2.5 points

QUESTION 10

Assume that you put 168.45 dollars in an account that earns simple interest at a 8.4 percent annual rate. How much is in your account after 16 years from now?

2.5 points

QUESTION 11

If you deposit 117.89 dollars in an account today, and the account balance is 220.51 dollars 8 years from now, what annual interest rate did you receive on your funds? (assume annual compounding and enter your response as a percent excluding the percentage sign i.e. 6.7)

2.5 points

QUESTION 12

Stealth trading is carried out to hide the trade motives of the trader

True

False

2.5 points

QUESTION 13

If you deposit $349.42 in an account today that earns a 4% annual interest rate that is compounded quarterly, how much will be in the account after 9 years?

2.5 points

QUESTION 14

What is today’s value of a $500 par value bond that has a 5% coupon payment with interest paid semi-annually, which has 5 years until maturity. The bond is priced to yield at 8%?
A.

356.52
B.

337.78
C.

439.16

2.5 points

QUESTION 15

If you invested $6,760 today in a savings account that offers 6% interest (compounded annually), how long will it take for you to have $22,445 in your account?

2.5 points

QUESTION 16

Illegal insider trading is when hedge funds and other institutional investors trade shares on the basis of material nonpublic information

True

False

2.5 points

QUESTION 17

Assuming that you earn interest on money, it is possible to directly compare cash flows occurring at different points in time without discounting/compounding.

True

False

2.5 points

QUESTION 18

If you deposit 556.74 dollars in an account today that earns a 12 percent annual interest rate that is compounded monthly, how much will be in the account after 5 years?

2.5 points

QUESTION 19

Price earnings ratio is defined a
A.

Current stock price / Future earnings per share (EPS)
B.

Expected stock price/ 52 week historical earnings per share(EPS)
C.

Current stock price / Earnings per share

2.5 points

QUESTION 20

What do you mean by “buying on margin” in stock markets?
A.

Borrow upto 50% of the investment value.
B.

Borrow upto 80% of the investment value.
C.

Borrow upto 100% of the investment value.

2.5 points

QUESTION 21

Which of the following is true about options?
A.

Selling option is safer than buying
B.

Buying and selling options has same risk
C.

Buying option is safer than selling

2.5 points

QUESTION 22

If you deposit 829.87 dollars in an account today that earns a 4 percent annual interest rate that is compounded monthly, how much will be in the account after 10 years?

2.5 points

QUESTION 23

Stealth trading involves breaking larger trade sizes in smaller chunks.

True

False

2.5 points

QUESTION 24

What other types of information is available for a stock on a site like Yahoo Finance?
A.

Information relevant to the peers of the company, such as Twitter’s news for Facebook
B.

What the accountant said to the Chief Financial Officer in a closed door meeting.
C.

What the CEO is planning to do with his own share of the company, 15 years forward.

2.5 points

QUESTION 25

Which of the following happens after a Bond rating goes down?
A.

Decreases risk
B.

Increases borrowing cost
C.

Increases value

2.5 points

QUESTION 26

Decimalization means the unit of the stock price (increase or decrease)

True

False

2.5 points

QUESTION 27

What is a call option?
A.

Contract which provides the obligation but not right to exercise the option
B.

Contract which provides the right but not obligation to exercise the option
C.

Contract which provides the right and an obligation to exercise the option

2.5 points

QUESTION 28

What is the main difference between a stock and a bond?
A.

Bonds provide higher returns than stocks
B.

Bonds have finite maturity and stock do not have finite maturity
C.

Stocks are cheaper than bonds

2.5 points

QUESTION 29

Which of the following describes the cost of your next best alternative?
A.    Interest verification
B.    Compounded value
C.    Alternating evaluation
D.    Opportunity cost

2.5 points

QUESTION 30

Legal insider trading when senior company officials trade their own company shares (legal as long as disclosure requirements are followed)

True

False

2.5 points

QUESTION 31

What is the current price of a bond if it is priced to yield 3 percent, has a $1,000 face value, has 10 years to maturity, pays semiannual coupon payments, and has a coupon rate of 6 percent?

2.5 points

QUESTION 32

What is the empirical research finding on insider trading?
A.

Rapid price discovery
B.

High abnormal returns
C.

Higher liquidity

2.5 points

QUESTION 33

If you deposit 75.89 dollars in an account today, and the account balance is 328.49 dollars 7 years from now, what annual interest rate did you receive on your funds? (assume annual compounding and enter your response as a percent excluding the percentage sign i.e. 6.7)

2.5 points

QUESTION 34

Duff Inc. paid a 2.74 dollar dividend today. If the dividend is expected to grow at a constant 4 percent rate and the required rate of return is 9 percent, what would you expect Duff’s stock price to be 3 years from now?

2.5 points

QUESTION 35

What types of information do analysts provide
A.

Forward looking earnings per share target estimates.
B.

Reasons why people purchased the stock around the time of the Great Depression forwards.
C.

The best guess for future valuation of the stock with no explanation as to why.

2.5 points

QUESTION 36

The main assumption in bond valuation is?
A.

Risk free
B.

High Volatility
C.

No bankruptcy costs

2.5 points

QUESTION 37

What does ‘Previous Close’ mean?
A.

The price at which the asset closed yesterday.
B.

The price which the asset will be valued at at 4:00 pm the following day.
C.

The date of last issuance of new shares by the company whose shares are being examined.

2.5 points

QUESTION 38

Which of the following is not the two main parts in bond payments?
A.

An annuity series comprising of coupon payments
B.

A single sum payable at the end
C.

Future value of the face value

2.5 points

QUESTION 39

Which of the following describes the growth of money under compound interest?
A.    Linear growth
B.

Stagnant growth
C.

Constant growth
D.    Exponential growth

2.5 points

QUESTION 40

A bond is currently priced to yield 7 percent and is selling for 734.51 dollars. If the bond pays semiannual coupon payments, has a $1,000 face value, and has 11 years left to maturity, what is the coupon rate for the bond? (enter your response as a percent excluding the percentage sign, i.e. 6.23% would be 6.23)

2.5 points

QUESTION 41

Which of the following would help you understand more about the value of a stock?
A.

Looking deep into your heart and determining what a fair price is for the value of the stock, based on future earnings potential.
B.

A historical biography on the life of the top five board members.
C.

Price/Earnings Ratio, Earnings / Share or EPS, the bid and ask price, ranges, volume, and market cap

2.5 points

QUESTION 42

You have $2000 today that you can invest at 12% for the next 2 years at monthly compounding. How much will you have in 2 years ?
A.

$3193.77
B.

$2000.44
C.

$1500.00
D.

$2539.40

2.5 points

QUESTION 43

Valuing a bond is relatively simpler than valuing a stock

True

False

2.5 points

QUESTION 44

Which of the following is not true about stock options?
A.

Stock options are purchased by paying option premium
B.

No intrinsic value
C.

Option price depends on the underlying value

2.5 points

QUESTION 45

Which of the follow is true about options?
A.

Option does not give the right but obligation to buy
B.

No intrinsic value
C.

Are legal contracts between two parties

2.5 points

QUESTION 46

Company Inc. paid a 1.42 dollar dividend today. If the dividend is expected to grow at a constant 1 percent rate and the required rate of return is 9 percent, what would you expect Company’s stock price to be?

2.5 points

QUESTION 47

Assume that you put 542.62 dollars in an account that earns simple interest at a 9.3 percent annual rate. How much is in your account after 8 years from now?

2.5 points

QUESTION 48

Tesla stock has just paid an annual dividend of $3. If Tesla’s dividends are expected to grow at a constant rate of 5% per year, and your required rate of return is 8%, what is the fair price of the stock today, based on this information.
A.

$100
B.

$105
C.

$156

2.5 points

QUESTION 49

Stealth trading helps to make abnormal profits

True

False

2.5 points

QUESTION 50

When you evaluate the broker’s/analyst’s recommendations, which of the following are important to consider?
A.

Whether the stock recommended provide you good returns?
B.

Whether the analyst has any conflict of interest
C.

The stock recommended by analyst will always provide high returns.