1. The concept of present value relates to the idea that*
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The discount rate is always higher when you invest now than in the
future
The discount rate is always higher when you invest in the future than
now
The money you have now is worth less today than an identical amount
you would receive in the future
The money you have now is worth more today than an identical amount
you would receive in the future
2. If you were able to earn interest at 3% and you started with $100, how much would you have
after 3 years?*
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109.27
$91.51
$109.27
$291.26
$103.00
3. Based on the numbers given below, calculate the net present value (NPV) of this project.*
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59.06
459.47
230.00
205.36
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Ans:59.06
4. What is an annuity?*
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An investment that has no definite end and a stream of cash payments
that continues forever
A stream of cash flows that start one year from today and continue
while growing by a constant growth rate
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A series of equal payments at equal time periods and guaranteed for a
fixed number of years
A series of unequal payments at equal time periods which are
guaranteed for a fixed number of years
Ans:C
5. What is a par value of a bond?*
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The amount borrowed by the issuer of the bond and returned to the
investors when the bond matures
The overall return earned by the bond investor when the bond matures
The difference between the amount borrowed by the issuer of bond and
the amount returned to investors at maturity
The size of the coupon investors receive on an annual basis
Par Value of Bonds
One of the most important characteristics of a bond is its par value. The
par value is the amount of money that bond issuers promise to repay
bondholders at the maturity date of the bond. A bond is essentially a
written promise that the amount loaned to the issuer will be repaid.
6. When the price of a bond is above the face value, the bond is said to be*
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Trading at par
Trading at a premium
Trading at a discount
Trading below par
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When the price of a bond goes above its face value, it is said to be a premium bond. When the
price is below its face value, it is known as a discount bond.
7. The concept of time value of money is that*
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The cash flows that occur earlier are more valuable than cash flows that
occur later
The cash flows that occur earlier are less valuable than cash flows that
occur later
The longer the time cash flows are invested, the more valuable they are
in the future
The future value of cash flows are always higher than the present value
of the cash flows
Ans:A
8. What is the enterprise value of a business?*
The market value of equity of the business
 The book value of equity of the business
 The entire value of the business without giving consideration to its
capital structure
 The entire value of the business considering its capital structure
Ans: The entire value of the business without giving consideration to its capital
structure
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