Financial Modeling Exam 1 questions |\ |\ |\ |\ |\
with answers |\
The 3 equivalent ways of calculating the present value of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
a single cash flow are: - CORRECT ANSWERS ✔✔1. PV
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
formula
2. PV function
|\ |\
3. PV timeline
|\ |\
The effect of future value of a single cash flow when you
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
increase the PV - CORRECT ANSWERS ✔✔an increase in
|\ |\ |\ |\ |\ |\ |\ |\ |\
the FV |\
The effect of future value when you increase the discount
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
rate - CORRECT ANSWERS ✔✔an increase in FV
|\ |\ |\ |\ |\ |\ |\
The effect of future value when you increase the number
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
of periods - CORRECT ANSWERS ✔✔an increase in the FV
|\ |\ |\ |\ |\ |\ |\ |\ |\
Fully explain the formula used for calculating the FV of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
each cash flow - CORRECT ANSWERS ✔✔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? - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\
✔✔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.
|\ |\ |\ |\ |\ |\ |\
Show the formula for calculating the Annuity Present
|\ |\ |\ |\ |\ |\ |\ |\
Value using the Annuity Future Value, Discount Rate, and
|\ |\ |\ |\ |\ |\ |\ |\ |\
# of Periods in Excel Notation - CORRECT ANSWERS
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✔✔APV = AFV/(1+r)^t |\ |\
State the effect of increasing the payment amount on the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
APV and AFV - CORRECT ANSWERS ✔✔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? - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔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 - CORRECT ANSWERS ✔✔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
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
with answers |\
The 3 equivalent ways of calculating the present value of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
a single cash flow are: - CORRECT ANSWERS ✔✔1. PV
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
formula
2. PV function
|\ |\
3. PV timeline
|\ |\
The effect of future value of a single cash flow when you
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
increase the PV - CORRECT ANSWERS ✔✔an increase in
|\ |\ |\ |\ |\ |\ |\ |\ |\
the FV |\
The effect of future value when you increase the discount
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
rate - CORRECT ANSWERS ✔✔an increase in FV
|\ |\ |\ |\ |\ |\ |\
The effect of future value when you increase the number
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
of periods - CORRECT ANSWERS ✔✔an increase in the FV
|\ |\ |\ |\ |\ |\ |\ |\ |\
Fully explain the formula used for calculating the FV of
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
each cash flow - CORRECT ANSWERS ✔✔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? - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\
✔✔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.
|\ |\ |\ |\ |\ |\ |\
Show the formula for calculating the Annuity Present
|\ |\ |\ |\ |\ |\ |\ |\
Value using the Annuity Future Value, Discount Rate, and
|\ |\ |\ |\ |\ |\ |\ |\ |\
# of Periods in Excel Notation - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔APV = AFV/(1+r)^t |\ |\
State the effect of increasing the payment amount on the
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
APV and AFV - CORRECT ANSWERS ✔✔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? - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔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 - CORRECT ANSWERS ✔✔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
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
