ECONOMICS 132
NEGROS ORIENTAL STATE UNIVERSITY(NORSU)
Examination Practice Questions
1. The present value of a set cash flows is:
a. The weighted average of present values of individual cash flows
b. The sum of individual cash flows which are then discounted
c. The sum of the present values of the individual cash flows
d. Always greater than the present value of the investment
Answer: C
2. Which of the following statements is true?
a. Regardless of the value of the interest rate, increasing the compounding frequency
will decrease the future value.
b. Regardless of the value of the interest rate, increasing the compounding frequency
will increase the future value.
c. There is a relationship between the future value of investment and the effect of
compounding frequency. At high interest rates, increases in compounding frequency
will decrease the future value.
d. There is a relationship between the future value of investment and the effect of
compounding frequency. At low interest rates, increases in compounding frequency
will decrease the future value.
Answer: B
3. The P/E ( price to earnings) ratio of a stock is_____ related to growth potential,______
related to the discount rate, and _______ related to the stock’s risk.
a. Positively, positively, negatively,
b. Negatively, positively, positively
c. Positively, negatively, negatively
d. Negatively, negatively, positively
Answer: C
4. Zeta Corporation has issued a $1,000 face value zero-coupon bond. Which of the
following values is closest to the correct price for the bond if the appropriate discount
rate is 4% and the bond matures in 8 years?
a. $ 960
b. $ 730
c. $ 1000
d. $ 1,350
Answer: B
NEGROS ORIENTAL STATE UNIVERSITY(NORSU)
Examination Practice Questions
1. The present value of a set cash flows is:
a. The weighted average of present values of individual cash flows
b. The sum of individual cash flows which are then discounted
c. The sum of the present values of the individual cash flows
d. Always greater than the present value of the investment
Answer: C
2. Which of the following statements is true?
a. Regardless of the value of the interest rate, increasing the compounding frequency
will decrease the future value.
b. Regardless of the value of the interest rate, increasing the compounding frequency
will increase the future value.
c. There is a relationship between the future value of investment and the effect of
compounding frequency. At high interest rates, increases in compounding frequency
will decrease the future value.
d. There is a relationship between the future value of investment and the effect of
compounding frequency. At low interest rates, increases in compounding frequency
will decrease the future value.
Answer: B
3. The P/E ( price to earnings) ratio of a stock is_____ related to growth potential,______
related to the discount rate, and _______ related to the stock’s risk.
a. Positively, positively, negatively,
b. Negatively, positively, positively
c. Positively, negatively, negatively
d. Negatively, negatively, positively
Answer: C
4. Zeta Corporation has issued a $1,000 face value zero-coupon bond. Which of the
following values is closest to the correct price for the bond if the appropriate discount
rate is 4% and the bond matures in 8 years?
a. $ 960
b. $ 730
c. $ 1000
d. $ 1,350
Answer: B
