MBA 621 exam 1 Questions & Answers Verified
100% Correct
At an annual interest rate of 7%, the present value of $5000 received in five years is closest to
$3565
5000/(1+0.07)^5
If the current market rate of interest is 10%, then the future value of $500 today in 3 years is
closest to
$666
500 x (1+0.10)^3
You are to receive $100 in one year from now, $200 in two years and $300 in three years. If
the current market interest rate is 9%, the present value of these cash flows is
$492
100/(1+0.09)^1 = 91.74
200/(1+0.09)^2 = 168.34
300/(1+0.09)^3 = 231.66
Add up all amounts to get PV.
There is a cash inflow of $500 today and a cash outflow of $500 two years from now. If the
current market rate of interest is 8%, then the value of these cash flows as of year 1 is closest
to
$77
500(1.08) - 500/1.08
,You are to invest $1000 now, $2000 in one year, $3000 in two years and $4000 in three years
in a savings account with an interest of 8%. How much will you have in four years
$11,699
FV= 1000 x 1.08^4 + 2000 x 1.08^3 + 3000 x 1.08^2 + 4000 x 1.08
The British government has a consol bond outstanding that pays 100 in interest each year.
Assuming that the current interest rate in Great Britain is 5% and that you will receive your
first interest payment one year from now, then the value of the consol bond is closest to
2000
C/r = 100/0.05
If the current rate of interest is 8%, then the present value of an investment that pays $1000
per year and lasts 20 years is closest to
$9,818
PV = C/r x (1-1/1+r)^N)
1000/.08 x (1-1/1+0.08)^20)
If the current rate of interest is 8%, then the future value 20 years from now of an investment
that pays $1000 per year and lasts 20 years is closest to
$45,762
FV = (C/r) x (1+r)^N-1)
1000/0.08 x (1+0.08)^20 -1
, Consider a growing perpetuity that will pay $100 in one year. Each year after that, you will
receive a payment on the anniversary of the last payment that is 6% larger than the last
payment. This pattern of payments will continue forever. If the interest rate is 11%, then the
value of this perpetuity is closest to:
$2000
Growing perpetuity = C/(r-g)
100/(0.11-0.06)
You are thinking about investing in a mine that will produce $10,000 worth of ore in the first
year. As the ore closest to the surface is removed it will become more difficult to extract the
ore. Therefore, the value of the ore that you mine will decline at a rate of 8% per year
forever. If the appropriate interest rate is 6%, then the value of this mining operation is
closest to
$71,429
PVP = C/(r-g)
10,000/0.06-(-0.08)
10,000/0.14
You are saving for retirement. To live comfortable, you decide that you will need $2.5 million
dollars by the time you are 65. If today is your 30th birthday and you decide, starting today,
and on every birthday up to and including your 65th birthday, that you will deposit the same
amount into your savings account. Assuming the interest rate is 5%, the amount that you
must set aside each year on your birthday is closest to
$26,100
PV (at age 29) = 2,500,000/(1.05)^36 = 431,643.54
100% Correct
At an annual interest rate of 7%, the present value of $5000 received in five years is closest to
$3565
5000/(1+0.07)^5
If the current market rate of interest is 10%, then the future value of $500 today in 3 years is
closest to
$666
500 x (1+0.10)^3
You are to receive $100 in one year from now, $200 in two years and $300 in three years. If
the current market interest rate is 9%, the present value of these cash flows is
$492
100/(1+0.09)^1 = 91.74
200/(1+0.09)^2 = 168.34
300/(1+0.09)^3 = 231.66
Add up all amounts to get PV.
There is a cash inflow of $500 today and a cash outflow of $500 two years from now. If the
current market rate of interest is 8%, then the value of these cash flows as of year 1 is closest
to
$77
500(1.08) - 500/1.08
,You are to invest $1000 now, $2000 in one year, $3000 in two years and $4000 in three years
in a savings account with an interest of 8%. How much will you have in four years
$11,699
FV= 1000 x 1.08^4 + 2000 x 1.08^3 + 3000 x 1.08^2 + 4000 x 1.08
The British government has a consol bond outstanding that pays 100 in interest each year.
Assuming that the current interest rate in Great Britain is 5% and that you will receive your
first interest payment one year from now, then the value of the consol bond is closest to
2000
C/r = 100/0.05
If the current rate of interest is 8%, then the present value of an investment that pays $1000
per year and lasts 20 years is closest to
$9,818
PV = C/r x (1-1/1+r)^N)
1000/.08 x (1-1/1+0.08)^20)
If the current rate of interest is 8%, then the future value 20 years from now of an investment
that pays $1000 per year and lasts 20 years is closest to
$45,762
FV = (C/r) x (1+r)^N-1)
1000/0.08 x (1+0.08)^20 -1
, Consider a growing perpetuity that will pay $100 in one year. Each year after that, you will
receive a payment on the anniversary of the last payment that is 6% larger than the last
payment. This pattern of payments will continue forever. If the interest rate is 11%, then the
value of this perpetuity is closest to:
$2000
Growing perpetuity = C/(r-g)
100/(0.11-0.06)
You are thinking about investing in a mine that will produce $10,000 worth of ore in the first
year. As the ore closest to the surface is removed it will become more difficult to extract the
ore. Therefore, the value of the ore that you mine will decline at a rate of 8% per year
forever. If the appropriate interest rate is 6%, then the value of this mining operation is
closest to
$71,429
PVP = C/(r-g)
10,000/0.06-(-0.08)
10,000/0.14
You are saving for retirement. To live comfortable, you decide that you will need $2.5 million
dollars by the time you are 65. If today is your 30th birthday and you decide, starting today,
and on every birthday up to and including your 65th birthday, that you will deposit the same
amount into your savings account. Assuming the interest rate is 5%, the amount that you
must set aside each year on your birthday is closest to
$26,100
PV (at age 29) = 2,500,000/(1.05)^36 = 431,643.54
