WSU Finance 325 Exam 2 Questions with Correct
Answers
Which one of the following statements correctly defines a time value of
money relationship?
A) Time and future values are inversely related, all else held constant.
B) Interest rates and time are positively related, all else held constant.
C) An increase in a positive discount rate increases the present value.
D) An increase in time increases the future value given a zero rate of
interest.
E) Time and present value are inversely related, all else held constant.
Correct Answer-E) Time and present value are inversely related, all else
held constant.
Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for
Years 1 to 4, respectively.
Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for
Years 1 to 4, respectively.
Which one of the following statements is true concerning these two
projects given a positive
discount rate? (No calculations needed)
A) Both projects have the same future value at the end of Year 4.
B) Both projects have the same value at Time 0.
C) Both projects are ordinary annuities.
D) Project Y has a higher present value than Project X.
, E) Project X has both a higher present and a higher future value than
Project Y Correct Answer-E) Project X has both a higher present and a
higher future value than Project Y.
The interest rate that is most commonly quoted by a lender is referred to
as the:
A) annual percentage rate.
B) compound rate.
C) effective annual rate.
D) simple rate.
E) common rate. Correct Answer-A) annual percentage rate.
The actual interest rate on a loan that is compounded monthly but
expressed as an annual rate
is referred to as the ________ rate.
A) stated
B) discounted annual
C) effective annual
D) periodic monthly
E) consolidated monthly Correct Answer-C) effective annual
An amortized loan:
A) requires the principal amount to be repaid in even increments over
the life of the loan.
Answers
Which one of the following statements correctly defines a time value of
money relationship?
A) Time and future values are inversely related, all else held constant.
B) Interest rates and time are positively related, all else held constant.
C) An increase in a positive discount rate increases the present value.
D) An increase in time increases the future value given a zero rate of
interest.
E) Time and present value are inversely related, all else held constant.
Correct Answer-E) Time and present value are inversely related, all else
held constant.
Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for
Years 1 to 4, respectively.
Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for
Years 1 to 4, respectively.
Which one of the following statements is true concerning these two
projects given a positive
discount rate? (No calculations needed)
A) Both projects have the same future value at the end of Year 4.
B) Both projects have the same value at Time 0.
C) Both projects are ordinary annuities.
D) Project Y has a higher present value than Project X.
, E) Project X has both a higher present and a higher future value than
Project Y Correct Answer-E) Project X has both a higher present and a
higher future value than Project Y.
The interest rate that is most commonly quoted by a lender is referred to
as the:
A) annual percentage rate.
B) compound rate.
C) effective annual rate.
D) simple rate.
E) common rate. Correct Answer-A) annual percentage rate.
The actual interest rate on a loan that is compounded monthly but
expressed as an annual rate
is referred to as the ________ rate.
A) stated
B) discounted annual
C) effective annual
D) periodic monthly
E) consolidated monthly Correct Answer-C) effective annual
An amortized loan:
A) requires the principal amount to be repaid in even increments over
the life of the loan.
