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Principles of corporate finance revision Questions: Choose the right alternative 1. A business owned by a single individual is called a(n): corporation. open structure. partnership. sole proprietorship. closed receivership 2. We multiple a given future value by this in order to get its present value equivalent. Present value Discount rate Discounted value Discount factor 3. The future value interest factor is calculated as: 1+r–t (1 + rt) (1 + r)(t) (1 + r)t 4. Given r and t greater than zero, future value interest factors are less than one. present value interest factors are less than one. present value interest factors are greater than future value interest factors present value interest factors decrease as t grows 5. The purchase and sale of securities after the original issuance occurs in the: primary market. Financial market secondary market. Monetary market 1 Exercises: 1. 4 years ago, an account was opened with $1200. Today, the account balance is $1632. If the account paid interest compounded annually. What rate of return are you earning? 2. you put $35,000 into a bank account earning 4%. You can't withdraw the money until the balance has doubled. How long will you have to leave the money in the account? 20 years 19 years 18 years 17 years 16 years 3. If a principal of $800 amounts to $1000 after five years of investment, then what annual interest rate is being received?(compound interest) 6.45% 5.23% 4.01% 4.56% 4. How long would it take $ 600 to double in value if the simple interest rate were 4.2% per year? 2