Objective type questions related to present and future value of money

**1.** What is the *future value (approx.)*, where present value=1000, r=6% and n=1?

- 1060.00
- 1600.00
- 943.40
- 900.00

**2. **What is the *future value (approx.)*, where present value=1000, r=6% and n=10?

- 1600.00
- 400.00
- 1790.85
- 1645.32

**3. ** What is the *present value (approx.),* where future value = 1000, r=6% and n=1?

- 1060.00
- 1600.00
- 943.40
- 900.00

**4. ** What is the *present value (approx.),* where future value = 1000, r=6% and n=5?

- 1300.00
- 747.26
- 545.38
- 700.00

**5. ** What is the *present value (approx.),* where future value = 1000, r=6% and n=10?

- 558.39
- 1600.00
- 400.00
- 428.32

**6. **Calculate the interest rate implied (approx.), where PV=1000, n=5, FV=1436.

- 5.6%
- 6.2%
- 7.5%
- 9.2%

**7. ** Calculate the interest rate implied (approx.), where PV=1000, n=11, FV=1750.

- 5.2%
- 3.7%
- 7.5%
- 9.2%

**8. ** How long (approx.) will it take for $500 to grow to $1,000 at 8% per year?

- 6 yrs
- 7
- 8
- 9

**9. ** How long (approx.) will it take for $500 to grow to $700 at 5% per year?

- 6.9 yrs
- 10.9
- 11.7
- 13.2

**10. **A famous quarterback just signed a $10 million contract providing $1 million a year for 10 years. The first payment is after one year. The interest rate is 10%. The quarterback's contract present value is approximately?

- 5.2 million
- 6.1
- 6.8
- 8.9

**11. **A less famous receiver just signed an $8 million contract providing $3 million now and $1 million for the next 5 years. The interest rate is 10%. The receiver's contract present value is approximately?

- 5.2
- 6.1
- 6.8
- 8.9

**12. **What is the present value (approx.) of a 5-year annuity of $100 if the discount rate is 6%?

- 326.25
- 421.24
- 532.83
- 601.23

**13.** Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four equal annual year-end payments. If the interest rate is 7%, what is the annual payment approximately?

- 189.65
- 220.21
- 295.23
- 401.89

**14. **The $40 million lottery payment that you just won actually pays $2 million per year for 20 years. If the discount rate is 5%, and the first payment comes in 1 year, what is the present value of the winnings approximately?

- 40.00 million
- 38.26
- 24.92
- 19.64

**15. **You believe you will need to have saved $500,000 by the time you retire in 35 years. If the interest rate is 9% per year, how much must you save each year (approx.) until retirement to meet your retirement goal?

- 3230.77
- 2317.92
- 1875.01
- 1306.00

**16.** Market-determined required rate of return is the same thing as discount rate, according to the text.

- True
- False

**17. **When the market interest rate exceeds the coupon rate, bonds sell for less than face value.

- True
- False

**18. **The yield to maturity is defined as the discount rate that makes the present value of the bond's payments equal its price.

- True
- False

**19.** Common stock usually represents a perpetuity.

- True
- False

**20.** Required rate of return = real rate of return + inflation premium + risk premium

- True
- False

**21.** Price-earnings ratio represents a multiplier applied to current earnings to determine the value of a share of stock.

- True
- False

**22. **Supernormal growth pattern is often experienced by firms in mature industries.

- True
- False

**23. **If the annual dividend of a preferred stock is $10 and the required rate of return is 10%, then the price of the preferred stock would be:

- $10
- $90
- $100
- $110

**24.** According to the constant growth dividend valuation model, if dividends were $2.00, required rate of return is 12%, and the dividends grow at a constant rate of 7% per year, the price of the stock would be:

- $24
- $40
- 48
- 60

**25. **What is the approximate price of a bond if par value is $1000, interest rate of (coupon) 9% matures in 20 years and the present yield to maturity is 6%?

- $910
- $1245
- $1344
- $1485

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