Series 65 ch 12.1

Which of the following methods of calculating investment returns are discounted cash flow techniques I. Net present value II. Holding period return III. Internal rate of return

I. Net present value III. Internal rate of return

Which of the following statements regarding internal rate of return is true A. IRR ignores the time value of money B. If the IRR is higher than the cost of borrowing to find an investment the investment is likely to be unprofitable C. IRR cannot be used effectively to measure return on investments with even cash flows such as Bonds D. IRR is the discount rate at which the net present value of an investment is equal to zero

IRR is the discount rate at which the net present value of an investment is equal to zero

The present value of a dollar A. Can not be calculated without knowing the level of inflation B. Is equal to its future value if the level of interest rate stay the same C. Is the amount of goods and services it will buy in the future at today's rate price level D. Indicates how much must be invested today at a given interest-rate to equal a specific cash value in the future

Indicates how much must be invested today at a given interest-rate to equal a specific cash value in the future

A client who is just to have $50,000 available to help fund a three-year-old child's college education and 15 years estimates that if the portfolio can earn 7% a deposit of $18,122.30 will be required today this deposit is referred to as A- The internal rate of return B -The net present value C-The present value D -The future value

The present value

A client owns an investment grade bond with a coupon of 7% if similarly rated bonds are being issued today with coupons at 5% and the market is efficient it would be expected that the clients bond A. Has zero net present value B . Has a negative net present value C. Has a positive net present value D. Will be selling at discount from par

Has a zero net present value

A bond yield to maturity reflects it

Internal rate of return

And investment of $1000 made 10 years ago is now worth $4000 using the rule of 72 the approximate compounded annual rate of return is

14.4%

I can't owns an investment grade bond with the coupon a 5% that is priced to yoga at 6.7% if similar really related bonds are being issued today with coupons of 7% it would be expected that the clients bond A. Has a positive net present value B. Will be selling at a premium over par C. Has a negative net present value D. Has zero net present value

Has a negative net present value

Present value is a computation frequently used to determine the amount of the deposit needed now to meet a future need such as college education. If an investor uses an expected return of 8% but the actual return over the period of 6% A- The present value was insufficient to meet the objective B - The yield to maturity was lower than anticipated C- The accumulated value will meet the objectives D - The future value will not be able to be computed

The present value was insufficient to meet the objective

The future value of an investor dollar is dependent upon I. The exchange rate of the dollar at the beginning and end of the period II. Interest rate at maturity III. The rate of return it earns IV. The timeperiod over which it is invested

The rate of return it earns And the time period Over which it is invested

Which of the following statements is not correct A- Net present value analysis is commonly used time value of money technique employed by businesses and investors to evaluate the cash flows associated with capital projects andcapital expenditures B IRR is a method of determining the exact discount rate to equalize cash inflows and outflows thus allowing comparisons of rate of return on alternative investments of unequal size and investment amounts C. Time-weighted returns show performance without the influence of additional investor deposits or withdrawals from the account D. NPV is the difference between the initial cash outflow parentheses investment (parentheses) and the future value of discounted cash flow's

Net present value is the difference between the initial cash outflow and the future value of discounted cash flow's

If an investment can be expected to return 8% using the rule of 72 what is the present value needed to have $50,000 cash for a child's education in 18 years

12,500 =Explanation 72÷18 = 4 50,000÷4 is 12,500

To make a quantitative a valuation using the present value computation which of the following is not needed A- Account value at the beginning of the period B - anticipated rate of return on the portfolio C - Account value at the end of the period D - Time period Involved

Account value at the beginning of the period

Which of the following statements regarding the time value of money is not correct A. Future value of an ordinary Annuity is the future amount to which a series of deposits of equal size will increase B. Compound interest is interest earned on interest C. Compound interest is interest earned on interest on the initial investment D. Future value is the future amount to which a sum of money today will increase on the basis of a defined interest rate and period.

Compound interest is interest earned on the initial investment

If the required rate of return is higher than anticipated in a present value calculation the effect would be that A- The present value would be higher B - The yield to maturity would increase C- The future value would be higher D- The present value would be lower

D. The present value would be lower

Your client has $10,000 to invest and expect to earn after-tax return of 8% to send his daughter to college in 12 years which of the following items will help determine whether the investment is likely to satisfy the clients goal A. CPI B. Expected cost of college C. Clients marginal federal income tax bracket D. Present value

Expected cost of college

One of the critical components for making suitable recommendations is the ability to evaluate risk. Wrist measurement tools would include all of the following except A - Beta B - sharpe ratio C - Standard deviation D - future value

Future value

A corporation is considering a substantial capital expenditure for new equipment used in the net present value technique the corporation will consider this investment to be acceptable if the net present value of the investment is

Greater than zero

Securities analyst would agree that it makes sense to purchase a fixed income security when it is net present value is

Positive

If you were using the discounted cash flow method to determine the appropriate value of a security you would want to purchase that security when

The current market price is below the PV

Which of the following best describes net present value A- The difference between the sum of the discounted cash flow's that are expected from an investment and it's initial cost B - it is the true interest yield expected from an investment expressed as a percentage C - The amount of money that must be invested today at some specified rate of return to equal a targeted value in a specified number of years D- The discounted rate that results in a return of zero for a series of future cash flow's

The difference between the sum of the discounted cash flow's that are expected from an investment and it's initial cost

It is better to receive a dollar today and invest it rather than receive a dollar in the future because of the

Time value of money

Which of the following attributes of common stock best describe why internal rate of return is not generally used to determine the return on common stock A. Common stock does not have a net present value B. Uneven cash flow's C. Uneven cash flow's and no maturity D. Uneven cash flow's and no maturity date and price

Uneven cash flow's and no maturity date and price

Which of the following securities has an easily determinable internal rate of return A. 5% municipal bond B. 6% ginnie mae C. Zero coupon bond D. 7% corporate bond

Zero coupon bond