Exam on Discounted Cash Flow Valuation

– Financial Management: Spring 2022 Multiple Choice: 4pts each
1. An ordinary annuity is best defined by which one of the following? A. Increasing payments paid for a definitive period of time. B. Increasing payments paid forever. C. Equal payments paid at the end of regular intervals over a stated time period. D. Equal payments paid at the beginning of regular intervals for a limited time period. E. Equal payments that occur at set intervals for an unlimited period of time. 2. Which one of the following accurately defines a perpetuity? A. A limited number of equal payments paid in even time increments. B. Payments of equal amounts that are paid irregularly but indefinitely. C. Varying amounts that are paid at even intervals forever. D. Unending equal payments paid at equal time intervals. E. Unending equal payments paid at either equal or unequal time intervals. 3. How is the principal amount of an interest-only loan repaid? A. The principal is forgiven over the loan period; thus it does not have to be repaid. B. The principal is repaid in decreasing increments and included in each loan payment. C. The principal is repaid in one lump sum at the end of the loan period. D. The principal is repaid in equal annual payments. E. The principal is repaid in increasing increments through regular monthly payments. 4. Which one of the following terms is defined as a loan wherein the regular payments, including bothinterest and principal amounts, are insufficient to retire the entire loan amount, which then must berepaid in one lump sum? A. Amortized loan. B. Continuing loan. C. Balloon loan. D. Pure discount loan. E. Interest-only loan. 5. As the beneficiary of a life insurance policy, you have two options for receiving the insuranceproceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for20 years. If you can earn 6 percent on your money, which option should you take and why? A. You should accept the payments because they are worth $209,414 to you today. B. You should accept the payments because they are worth $247,800 to you today. C. You should accept the payments because they are worth $336,000 to you today. D. You should accept the $200,000 because the payments are only worth $189,311 to youtoday. E. You should accept the $200,000 because the payments are only worth $195,413 to youtoday. MBA 635.21 - Financial Management: 6. You need some money today and the only friend you have that has any is your miserly friend. Heagrees to loan you the money you need, if you make payments of $30 a month for the next sixmonths. In keeping with his reputation, he requires that the first payment be paid today. He alsocharges you 2 percent interest per month. How much money are you borrowing? A. $164.09 B. $168.22 C. $169.50 D. $170.68 E. $171.40 7. You are comparing two annuities with equal present values. The applicable discount rate is 7.25percent. One annuity pays $2,500 on the first day of each year for 15 years. How much does thesecond annuity pay each year for 15 years if it pays at the end of each year? A. $2,331.00 B. $2,266.67 C. $2,500.00 D. $2,390.50 E. $2,681.25 8. You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25years. Payments are made monthly. If you pay the mortgage according to the loan agreement, howmuch total interest will you pay? A. $160,408 B. $147,027 C. $153,524 D. $164,319 E. $141,406 9. What is the net present value of the following cash flow stream if the discount rate is at 11 percentannually.Year Cash Flow1 $2,0002 2,5003 1,7504 1,250 A. $4,586 B. $6,586.58 C. 8,325 D. $5,933.86 E. $3,456 MBA 635.21 - Financial Management: Spring 2022 10. On this date last year, you borrowed $3,400. You have to repay the loan principal plus all of theinterest six years from today. The payment that is required at that time is $6,000. What is the interestrate on this loan? A. 8.01 percent B. 8.45 percent C. 8.78 percent D. 9.47 percent E. 9.93 percent 11 Today, you borrowed $6,200 on your credit card to purchase some furniture. The interest rate is 14.9percent, compounded monthly. How long will it take you to pay off this debt assuming that you donot charge anything else and make regular monthly payments of $120? A. 5.87 years B. 6.40 years C. 6.93 years D. 7.23 years E. 7.31 years Chapter 7 Interest Rates and Bond Valuation 12, Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to thispayment? A. Coupon B. Face value C. Discount D. Call premium E. Yield 13. A discount bond's coupon rate is equal to the annual interest divided by the: A. call price. B. current price. C. face value. D. clean price. E. dirty price. 14. The bond market requires a return of 9.8 percent on the 5-year bonds issued by JW Industries. The 9.8percent is referred to as the: A. coupon rate. B. face rate.C. call rate.D. yield to maturity.E. current yield.MBA 635.21 - Financial Management: Spring 2022 Multiple Choice: 4pts each=100 pointsMid-Term Exam: Due Friday March 25, 2022 @ 6pm15. The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, andhave a $1,000 face value. Currently, the bonds sell for $987. What is the yield to maturity?A. 6.97 percentB. 6.92 percentC. 6.88 percentD. 7.22 percentE. 7.43 percent16. Redesigned Computers has 6.5 percent coupon bonds outstanding with a current market price of$548. The yield to maturity is 13.2 percent and the face value is $1,000. Interest is paid annually.How many years is ...