Financial Modeling Exam 1 Questions and Answers 100% Pass

Financial Modeling Exam 1 Questions and Answers 100% Pass The 3 equivalent ways of calculating the present value of a single cash flow are: - 1. PV formula 2. PV function 3. PV timeline The effect of future value of a single cash flow when you increase the PV - an increase in the FV The effect of future value when you increase the discount rate - an increase in FV The effect of future value when you increase the number of periods - an increase in the FV Fully explain the formula used for calculating the FV of each cash flow - Each cash flow is compounded at the Discount Rate for the remaining periods What is the name of the term that the Present Value is divided by to get the Payment. Why does this formula give the Payment amount? - Present Value Interest Factor of 2Katelyn Whitman, All Rights Reserved © 2025 Annuity. APV = PMT X PVIFA. So, dividing by the Present Value Interest Factor undo's the product, and gives you the PMT. Show the formula for calculating the Annuity Present Value using the Annuity Future Value, Discount Rate, and # of Periods in Excel Notation - APV = AFV/(1+r)^t State the effect of increasing the payment amount on the APV and AFV - APV = increase in FV AFV = increase in FV 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? - No, because the NPV function & constant discount formula only allow for one constant discount rate. Fully explain the NPV function used to calculate the NPV in cell b21 - The NPV function in Excel assumes that Year 0 cash flow occurs at the end of the year instead of the beginning, so you add it to the NPV of the remaining years using the NPV function. The NPV function takes the cash flows from each year, discounts it by the nominal discount rate (which is found by compounding the inflation rate & the real discount rate) and summing them up (including the initial investment) Is the NPV of the project shown acceptable for investment? Why/Why not - A project is acceptable if the NPV is positive 3Katelyn Whitman, All Rights Reserved © 2025 If we add the inflation rate and the real discount rate to get the nominal discount rate, how will it be different from the formula in b9? - It won't give us the effect/measurement of the increase in the real discount rate due to inflation Why is the coupon bond yield to maturity close to, but not exactly equal to, the yield to maturity of the four-year treasury strip? - Because the yield of the coupon bond is a weighted average of the yields for each of the 8 periods. The biggest cash flow is on the maturity date, and the biggest weight in the weighted average is on that date. So, it's closest to the yield at the maturity date. But now the same. State whether the EAR convention results in a higher or lower bond price than the APR convention in and give the reason for this. - higher bond price because it is a lower discount rate, which from the laws of discounting cas