Quiz 2
an investment that costs $105000 today is expected to produce the following cash inflows over each of the next five years: $20000; $25000; $23000; $22000; $21000. what is the IRR (compounded annually) for this investment
1.89%
which of the following is not a basic component of any compounding problem
a net present value
the internal rate of return
can be defined by all of the above
You always see an ordinary annuity used in business and never see an annuity due used in business
false
assume that an investment with a single initial cost of $1000 and a yield of $50 monthly for 10 years had a 7% IRR in the 60th month and a 7.2% IRR five months later the IRR can be 6.8% in the 62nd month
false
one way to calculate the present value of a single payment is with the following formula: PV = FV X (1+i)^n
false
the future value of a $1 annuity compounded at 5% annually is greater than the future value of a $1 annuity compounded at 5% semiannually
false
the internal rate of return is the good feeling you get inside when you earn a return on your investment
false
if you saw a table containing the following factors what kind of interest factor would you be looking at. end of year 6% 1. 1.06000 2. 1.12360 3. 1.19101 4. 1.26247 5. 1.33822
future value of a single amount
begin with a single sum of money at period 0. first calculate a future value of that sum at 12.01% then discount that future value back to period 0 at 11.99% in relation to the initial single sum the discounted future value
is greater than the original amount
the future value of a single deposit of $1000 will be greatest when this amount is compounded
monthly
the name for a series of equal annual cash flows that are received at the end of each period is
ordinary annuity
The future value of $800 deposited today would be greater if that deposit earned 8% rather than 7.75%
true
an investment may have more than one internal rate of return
true
in order to solve a compounding problem you must know all four of the variables in order to solve for the fifth variable
true
the future value compound factor given for period (n) at 15%
would be less than the factor for period (n+1) at 15%
how may years will it take for an investment to double if it earns 10% interest per year (compounded monthly)
7 years
the future value of $1000 compounded annually for 8 years at 12% may be calculated with the following formula: fv = $1000 (1+12%)^8 if the same $1000 was compounded quarterly what formula would you use to calculate the fv
FV = $1000 X (1+3%)^32
for situations calling for other than annual compounding each of these factors (when present) must be adjusted for the number of compounding periods in a year
N, i, & PMT
if an investment earns 12% annually
An equivalent monthly investment would have to earn a lower equivalent nominal rate to yield the same return
