BSNS114 Exam with Questions and
100% Correct Answers
What is future value - Answer What the investment will be worth after earning
interest for one or more periods
What is present value - Answer What the investment is worth today, the amount a
future sum of money is worth today given a specific discount factor
Interest rate - Answer Interest rate expressed as a percentage of the principal, it is the
rate which is charged or paid for use of assets (physical or financial)
Investing for one period - Answer present value grows by a factor of 1+r
What does Interest rate account for - Answer uncertainty (risk) premium and
inflation premium which both include which are the adjustments made to the
interest rate to account for risk and inflation and time preference (current
consumption over future consumption) which is the base rate of the interest rate
Investing for t periods - Answer present value grows by a factor of (1+r)^t
,Compounding - Answer the process in which interest is earned on both the principal and
on any previously earned interest
Future value of present cash amount compounding equation - Answer FV=PV x (1+r)^t
Future value of present cash amount simple equation - Answer FV=PV x (1+(rxt))
Present value equation - Answer PV=FV/(1+r)^t
What is discounting - Answer reducing a value which is the process of translating
future cash into today's cash amount
Interest rate also means - Answer an exchange rate between today and sometime
later, the rate of return (payoff you collect from an investment expressed as a
percentage of initial investment value), discount rate, implied rate of interest and cost
of capital or opportunity cost
Interest rate equation - Answer r=(FV/PV)^1/t)-1
More frequently compounded interest - Answer FV=PV x (1+r/n)^t x n (where n is
the number of times the interest compounds each year)
Relationship between r and t - Answer Interest rate(r) is almost always quoted her year
and investment period is in units of years(t)
APR (Annual Percentage Rate) - Answer is an annualised interest rate using simple
interest
, EAR (effective annual rate) - Answer is an annual growth rate that takes
compounding into account, may differ from the annual percentage rate
What is the objective of financial business making - Answer To maximise value of
the business(firm)/maximise stockholder wealth(or share price)
What helps with with maximising the value of a business or firm - Answer investment,
financing and working capital management decisions
What are the variables to consider when starting a business? - Answer Assets, liabilities,
equity
Assets - Answer What a firm owns
Liabilities - Answer what a firm owns
Equity - Answer Capital received from owners aka investors
The 2 ways in which a business can raise money to fund the startup of a business
- Answer debt and equity
using debt to start a business - Answer firm makes a promise to make fixed payments in
the future =Principal + interest
Debt - Answer Contractual obligation + usually fixed term
using equity to start a business - Answer Keeps the earnings + perpetual (never
ending/changing) (occurring repeatedly)
100% Correct Answers
What is future value - Answer What the investment will be worth after earning
interest for one or more periods
What is present value - Answer What the investment is worth today, the amount a
future sum of money is worth today given a specific discount factor
Interest rate - Answer Interest rate expressed as a percentage of the principal, it is the
rate which is charged or paid for use of assets (physical or financial)
Investing for one period - Answer present value grows by a factor of 1+r
What does Interest rate account for - Answer uncertainty (risk) premium and
inflation premium which both include which are the adjustments made to the
interest rate to account for risk and inflation and time preference (current
consumption over future consumption) which is the base rate of the interest rate
Investing for t periods - Answer present value grows by a factor of (1+r)^t
,Compounding - Answer the process in which interest is earned on both the principal and
on any previously earned interest
Future value of present cash amount compounding equation - Answer FV=PV x (1+r)^t
Future value of present cash amount simple equation - Answer FV=PV x (1+(rxt))
Present value equation - Answer PV=FV/(1+r)^t
What is discounting - Answer reducing a value which is the process of translating
future cash into today's cash amount
Interest rate also means - Answer an exchange rate between today and sometime
later, the rate of return (payoff you collect from an investment expressed as a
percentage of initial investment value), discount rate, implied rate of interest and cost
of capital or opportunity cost
Interest rate equation - Answer r=(FV/PV)^1/t)-1
More frequently compounded interest - Answer FV=PV x (1+r/n)^t x n (where n is
the number of times the interest compounds each year)
Relationship between r and t - Answer Interest rate(r) is almost always quoted her year
and investment period is in units of years(t)
APR (Annual Percentage Rate) - Answer is an annualised interest rate using simple
interest
, EAR (effective annual rate) - Answer is an annual growth rate that takes
compounding into account, may differ from the annual percentage rate
What is the objective of financial business making - Answer To maximise value of
the business(firm)/maximise stockholder wealth(or share price)
What helps with with maximising the value of a business or firm - Answer investment,
financing and working capital management decisions
What are the variables to consider when starting a business? - Answer Assets, liabilities,
equity
Assets - Answer What a firm owns
Liabilities - Answer what a firm owns
Equity - Answer Capital received from owners aka investors
The 2 ways in which a business can raise money to fund the startup of a business
- Answer debt and equity
using debt to start a business - Answer firm makes a promise to make fixed payments in
the future =Principal + interest
Debt - Answer Contractual obligation + usually fixed term
using equity to start a business - Answer Keeps the earnings + perpetual (never
ending/changing) (occurring repeatedly)
