FINANCIAL MODELING EXAM 1
1. The 3 equivalent ways of calculating the present value of a single cash flow
are
Answer 1. PV formula
2. PV function
3. PV timeline
2. The effect of future value of a single cash flow when you increase the PV
Answer an increase in the FV
3. The effect of future value when you increase the discount rate
Answer an increase in FV
4. The effect of future value when you increase the number of periods
Answer an increase in the FV
5. Fully explain the formula used for calculating the FV of each cash flow
Answer Each cash flow is compounded at the Discount Rate for the remaining periods
6. What is the name of the term that the Present Value is divided by to get the
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, Payment. Why does this formula give the Payment amount?
Answer Present Value Interest Factor of Annuity. APV = PMT X PVIFA. So, dividing by the Present Value
Interest Factor undo's the product, and gives you the PMT.
7. Show the formula for calculating the Annuity Present Value using the Annuity
Future Value, Discount Rate, and # of Periods in Excel Notation
Answer APV = AFV/(1+r)^t
8. State the effect of increasing the payment amount on the APV and AFV
Answer APV = increase in FV
AFV = increase in FV
9. Can the constant discount rate method be used to calculate NPV in the
general case where the discount rate changes over time? Why/Why not?
Answer No, because the NPV function & constant discount formula only allow for one constant discount
rate.
10. Fully explain the NPV function used to calculate the NPV in cell b21
Answer The NPV function in Excel assumes that Year 0 cash flow occurs at the end of the year instead of the
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1. The 3 equivalent ways of calculating the present value of a single cash flow
are
Answer 1. PV formula
2. PV function
3. PV timeline
2. The effect of future value of a single cash flow when you increase the PV
Answer an increase in the FV
3. The effect of future value when you increase the discount rate
Answer an increase in FV
4. The effect of future value when you increase the number of periods
Answer an increase in the FV
5. Fully explain the formula used for calculating the FV of each cash flow
Answer Each cash flow is compounded at the Discount Rate for the remaining periods
6. What is the name of the term that the Present Value is divided by to get the
1/
15
, Payment. Why does this formula give the Payment amount?
Answer Present Value Interest Factor of Annuity. APV = PMT X PVIFA. So, dividing by the Present Value
Interest Factor undo's the product, and gives you the PMT.
7. Show the formula for calculating the Annuity Present Value using the Annuity
Future Value, Discount Rate, and # of Periods in Excel Notation
Answer APV = AFV/(1+r)^t
8. State the effect of increasing the payment amount on the APV and AFV
Answer APV = increase in FV
AFV = increase in FV
9. Can the constant discount rate method be used to calculate NPV in the
general case where the discount rate changes over time? Why/Why not?
Answer No, because the NPV function & constant discount formula only allow for one constant discount
rate.
10. Fully explain the NPV function used to calculate the NPV in cell b21
Answer The NPV function in Excel assumes that Year 0 cash flow occurs at the end of the year instead of the
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