Test 1 Total points 21/30

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At what rate must $400 be compounded annually for it to grow to 2/2

$716.40 in 10 years? *

6%

5%

7%

8%

An investor will invest $1,000 now and expect to receive $10 for each of 0/2
the next 10 years plus $1,000 at the end of the 10th year. Her cash flow at
time period 0 is *

$1,000

-$1,000

$-990

$1,010

Correct answer

-$1,000
Mr. Moyo takes a loan of $ 50,000 from HDFC Bank. The rate of interest 2/2
is 10% per annum. The first installment will be paid at the end of year 5.
Determine the amount of equal annual installments if Mr. Moyo wishes to
repay the amount in five installments *

$19500

$ 19400

$19310

None of these

Which interest rate would you prefer as an investor * 1/1

Compound interest

Simple interest

Effective annual interest rate

Any of these rates

The time value of money is created by * 2/2

the existence of profitable investment alternatives and interest rates.

the fact that the passing of time increases the value of money.

the elimination of the opportunity cost as a consideration.

the fact that the value of saving money for tomorrow could be more or less than
spending it today.
 To increase a given present value, the discount rate should be adjusted * 0/2

upward.

downward.

True.

Remain constant

Correct answer

downward.

Option 1

Present value tables for annuity cannot be straight away applied to 1/1
varied stream of cash flows. *

True

False

In a typical loan amortization schedule, the dollar amount of interest paid 0/1
each period *

increases with each payment

decreases with each payment

remains constant with each payment

Correct answer

decreases with each payment

 At 8% compounded annually, how long will it take $750 to double? * 2/2

6.5 years

48 months

9 years

12 years

If the nominal rate of interest is 10% per annum and there is quarterly 2/2
compounding, the effective rate of interest will be: *

10% per annum

10.10 per annum

10.25%per annum

10.38% per annum

Heterogeneous cash flows can be made comparable by * 0/2

Discounting technique

Compounding technique

Either a or b

None of the above

Correct answer

Either a or b
An investor will invest $1,000 now and expect to receive $10 for each of 2/2
the next 10 years plus $1,000 at the end of the 10th year. Her cash at
time period 10 is *

$10

$1,000

$-990

$1,010

If nominal rate of return is 10% per annum and annual effective rate of 2/2
interest is 10.25% per annum, determine the frequency of compounding:
*

None of these

Time value of money indicates that * 1/1

A unit of money obtained today is worth more than a unit of money obtained in
future

A unit of money obtained today is worth less than a unit of money obtained in future

There is no difference in the value of money obtained today and tomorrow

None of these
A diagram for visualizing future cash flows is known as * 1/1

a future value vector.

a cash flow chart.

an FV/PV plot.

a timeline.

What is the value of $750 invested at 7.5% compounded quarterly for 4.5 2/2
years (round to the nearest $1)? *

$1,048

$1,010

$1,038

$808

In a typical loan amortization schedule, the total dollar amount of money 1/1
paid each period *

increases with each payment

decreases with each payment

remains constant with each payment

 Financial managers use the time value of money to * 0/2

A. make business decisions.

B. compare cash flows of different projects.

C. determine the price of common stock.

D. both A and B.

E. all of the these

Correct answer

D. both A and B.

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