Financial Modeling Exam 1 questions |\ |\ |\ |\ |\
with answers |\
Chapter One - Basic Financial Calculations
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Time Value of Money - CORRECT ANSWERS ✔✔- 100
|\ |\ |\ |\ |\ |\ |\ |\ |\
dollars today does not have the same value as 100
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
dollars in a year |\ |\ |\
- put money in the bank and earn the 1-year risk-free rate
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
- this leads us to the Discounted Cash Flow Analysis (DCF)
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DCF - CORRECT ANSWERS ✔✔Discounted Cash Flow
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Analysis:
-most basic and most widely used too for financial
|\ |\ |\ |\ |\ |\ |\ |\ |\
modeling
-Converting future cash flows into present value |\ |\ |\ |\ |\ |\ |\
equivalents so that cash flows at different points in time
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
can be compared.
|\ |\
*usually there is more than one way to do things- e.g.,
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
writing own formulas in Excel vs. Excel built-in functions.
|\ |\ |\ |\ |\ |\ |\ |\ |\
Depends on situation as too which is better.
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,Future Value (of a Lump Sum) - CORRECT ANSWERS
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✔✔FV = Present Cash Flow x (1+r)^t
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- $100 in the bank today at 10% interest
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- after 1-year: 100 + 100*0.10 = $110 = 100 * (1.10)
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- after 2-years: 110 + 110*0.10 = $121 = 110 * (1.10)
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- so, 100*(1+.10)*(1.10) = 100 * (1.10)^2 = $121
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Present Value of a Lump Sum - CORRECT ANSWERS ✔✔PV
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= Future Cash Flow / (1+r)^t
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- Present Value $121, 2-years, discount factor 10%
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- =$100
|\
- In other words, you need to deposit $100 today to get
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$121 in two years. |\ |\ |\
Relationship Between Interest Rates and Present and |\ |\ |\ |\ |\ |\ |\
Future Values - CORRECT ANSWERS ✔✔Present Value =
|\ |\ |\ |\ |\ |\ |\ |\
decreasing interest rates |\ |\
Future Value = increasing interest rates
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Present Value of Annuity - CORRECT ANSWERS ✔✔PV =
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PMT SUM(t, j=1)[1/(1+r)]^j=PMT x [1-(1+i)^-t/1]
|\ |\ |\ |\
,- PMT = periodic annuity payment
|\ |\ |\ |\ |\
The present value of a finite series of equal cash flows
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
received on the last day of equal intervals throughout the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
investment horizon. |\
Future Value of Annuity - CORRECT ANSWERS ✔✔FVt =
|\ |\ |\ |\ |\ |\ |\ |\ |\
PMT SUM(t-1, j=0) = (1+r)^j = PMT x [(1+i)^t-1 / i]
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
- PMT = periodic annuity payment
|\ |\ |\ |\ |\
The future value of a finite series of equal cash flows
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
received on the last day of equal intervals throughout the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
investment horizon. |\
Financial Calculator - CORRECT ANSWERS ✔✔-CFA exams
|\ |\ |\ |\ |\ |\ |\
require the sole usage of a financial calculator
|\ |\ |\ |\ |\ |\ |\
-Common Financial Calculator: Texas Instruments BA II
|\ |\ |\ |\ |\ |\ |\
Plus
-Key inputs/outputs (solve for one of five)
|\ |\ |\ |\ |\ |\
N = number of compounding periods
|\ |\ |\ |\ |\
, I/Y = annual interest rate
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PV = present value (i.e. current price)
|\ |\ |\ |\ |\ |\
PMT = a constant payment every period
|\ |\ |\ |\ |\ |\
FV = future value (i.e. future price)
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Perpetuity - CORRECT ANSWERS ✔✔PV of Perpetuity = D / |\ |\ |\ |\ |\ |\ |\ |\ |\
r
|\
A perpetuity is a type of annuity that receives an infinite
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
amount of period payments. |\ |\ |\
As with any annuity, the perpetuity value formula sums
|\ |\ |\ |\ |\ |\ |\ |\ |\
the present value of future cash flows.
|\ |\ |\ |\ |\ |\
NPV - CORRECT ANSWERS ✔✔Net Present Value
|\ |\ |\ |\ |\ |\
NPV = CFo + SUM(n,t=1) CFt / (1+r)^t
|\ |\ |\ |\ |\ |\ |\
Convention is that cash inflows are positive in sigh and |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
cash outflows are negative in sign.
|\ |\ |\ |\ |\
with answers |\
Chapter One - Basic Financial Calculations
|\ |\ |\ |\ |\
Time Value of Money - CORRECT ANSWERS ✔✔- 100
|\ |\ |\ |\ |\ |\ |\ |\ |\
dollars today does not have the same value as 100
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
dollars in a year |\ |\ |\
- put money in the bank and earn the 1-year risk-free rate
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
- this leads us to the Discounted Cash Flow Analysis (DCF)
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
DCF - CORRECT ANSWERS ✔✔Discounted Cash Flow
|\ |\ |\ |\ |\ |\ |\
Analysis:
-most basic and most widely used too for financial
|\ |\ |\ |\ |\ |\ |\ |\ |\
modeling
-Converting future cash flows into present value |\ |\ |\ |\ |\ |\ |\
equivalents so that cash flows at different points in time
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
can be compared.
|\ |\
*usually there is more than one way to do things- e.g.,
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
writing own formulas in Excel vs. Excel built-in functions.
|\ |\ |\ |\ |\ |\ |\ |\ |\
Depends on situation as too which is better.
|\ |\ |\ |\ |\ |\ |\
,Future Value (of a Lump Sum) - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔FV = Present Cash Flow x (1+r)^t
|\ |\ |\ |\ |\ |\
- $100 in the bank today at 10% interest
|\ |\ |\ |\ |\ |\ |\ |\
- after 1-year: 100 + 100*0.10 = $110 = 100 * (1.10)
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
- after 2-years: 110 + 110*0.10 = $121 = 110 * (1.10)
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
- so, 100*(1+.10)*(1.10) = 100 * (1.10)^2 = $121
|\ |\ |\ |\ |\ |\ |\ |\
Present Value of a Lump Sum - CORRECT ANSWERS ✔✔PV
|\ |\ |\ |\ |\ |\ |\ |\ |\
= Future Cash Flow / (1+r)^t
|\ |\ |\ |\ |\ |\
- Present Value $121, 2-years, discount factor 10%
|\ |\ |\ |\ |\ |\ |\
- =$100
|\
- In other words, you need to deposit $100 today to get
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
$121 in two years. |\ |\ |\
Relationship Between Interest Rates and Present and |\ |\ |\ |\ |\ |\ |\
Future Values - CORRECT ANSWERS ✔✔Present Value =
|\ |\ |\ |\ |\ |\ |\ |\
decreasing interest rates |\ |\
Future Value = increasing interest rates
|\ |\ |\ |\ |\
Present Value of Annuity - CORRECT ANSWERS ✔✔PV =
|\ |\ |\ |\ |\ |\ |\ |\ |\
PMT SUM(t, j=1)[1/(1+r)]^j=PMT x [1-(1+i)^-t/1]
|\ |\ |\ |\
,- PMT = periodic annuity payment
|\ |\ |\ |\ |\
The present value of a finite series of equal cash flows
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
received on the last day of equal intervals throughout the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
investment horizon. |\
Future Value of Annuity - CORRECT ANSWERS ✔✔FVt =
|\ |\ |\ |\ |\ |\ |\ |\ |\
PMT SUM(t-1, j=0) = (1+r)^j = PMT x [(1+i)^t-1 / i]
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
- PMT = periodic annuity payment
|\ |\ |\ |\ |\
The future value of a finite series of equal cash flows
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
received on the last day of equal intervals throughout the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
investment horizon. |\
Financial Calculator - CORRECT ANSWERS ✔✔-CFA exams
|\ |\ |\ |\ |\ |\ |\
require the sole usage of a financial calculator
|\ |\ |\ |\ |\ |\ |\
-Common Financial Calculator: Texas Instruments BA II
|\ |\ |\ |\ |\ |\ |\
Plus
-Key inputs/outputs (solve for one of five)
|\ |\ |\ |\ |\ |\
N = number of compounding periods
|\ |\ |\ |\ |\
, I/Y = annual interest rate
|\ |\ |\ |\
PV = present value (i.e. current price)
|\ |\ |\ |\ |\ |\
PMT = a constant payment every period
|\ |\ |\ |\ |\ |\
FV = future value (i.e. future price)
|\ |\ |\ |\ |\ |\
Perpetuity - CORRECT ANSWERS ✔✔PV of Perpetuity = D / |\ |\ |\ |\ |\ |\ |\ |\ |\
r
|\
A perpetuity is a type of annuity that receives an infinite
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
amount of period payments. |\ |\ |\
As with any annuity, the perpetuity value formula sums
|\ |\ |\ |\ |\ |\ |\ |\ |\
the present value of future cash flows.
|\ |\ |\ |\ |\ |\
NPV - CORRECT ANSWERS ✔✔Net Present Value
|\ |\ |\ |\ |\ |\
NPV = CFo + SUM(n,t=1) CFt / (1+r)^t
|\ |\ |\ |\ |\ |\ |\
Convention is that cash inflows are positive in sigh and |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
cash outflows are negative in sign.
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