Finance Exam #1

False

True or False​: According to the Order of​ Operations, exponents are applied before the expression in​ parentheses, and addition and subtraction are to be completed before multiplication and division.

False

True or​ False: Annuities are unequal cash flows that go on for a finite period of time.

True

True or​ False: Ceteris paribus​, as a debtor and for the same annual interest​ rate, you would prefer simple interest to compound interest.

False

True or​ False: Ceteris​ paribus, the FV and the number of periods are inversely related.

False

True or​ False: Compounding is the process used to find a PV.

False

True or​ False: FVs are earlier values and PVs are later values.

True

True or​ False: FVs represent the amount that an earlier amount will grow into.

False

True or​ False: FVs represent what you need to invest later to have it grow into a specified earlier amount.

True

True or​ False: For​ fixed-rate fully amortized mortgage​ loans, more of the fixed payment goes towards principal as we approach the end of the loan term.

True

True or​ False: Given the amount needed at the beginning of the retirement​ period, the annual deposits needed during the working period can be found by solving for​ "PMT" in the FVA formula.

True

True or​ False: PVs are leftward on a time line and FVs are rightward on the time line.

False

True or​ False: The number of years it would take an investment to double is approximately equal to the annual interest rate divided 72.

False

True or​ False: The principal part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by the ending balance for a given period.

True

True or​ False: There are 3 formulas on our formula sheet that contain the variable​ "PMT.

False

True or​ False: There are a total of 5 variables in the basic TVM​ lump-sum formulas.

False

True or​ False: The​ right-hand side variables in the discount rate formula represent the 3 key factors determining stock prices.

False

True or​ False: We can determine which​ "PMT" we're being asked to solve for by noting what the problem provides in terms of r and n.

True

True or​ False: We can find the amount needed to pay off a​ fixed-rate fully amortized mortgage loan at any point in time by solving for the PV of the remaining payments.

True

True or​ False: What is​ "discounted" from the FV is the interest part to arrive at the PV.

True

True or​ False: With compound​ interest, interest is earned every period on that​ period's starting amount.

True

True or​ False: ​ "PMT" in the PVA formula tells us the periodic mortgage payments for a​ fixed-rate fully amortized loan.

False

True or​ False: ​ "When given the annual withdrawals desired during the retirement​ period, the FVA tells us the amount we should have accumulated by the time we begin the retirement period.

True

True or​ False: ​ We've discussed 3 different multiple cash flow patterns.

The amount of interest you could have earned placing the money in a savings account.

What is the opportunity cost associated with not receiving a lump sum of money today, but instead receiving it one year from now?

An annuity due

When the payment of an annuity occurs at the beginning of the period instead of at the end of the period it is known as:

Although the payment is the same each month, the interest that accrues each month decreases.

Which of the following statements about amortizing a loan is true?

is worth more than a dollar received tomorrow

In general, a dollar received today:

False

TF To change a decimal value to a​ percent, divide by 100.

True

TF The working capital management area deals with how much of a​ firm's assets should be held in​ cash, inventory and accounts receivable.

amortized

A(n) __________ loan allows the borrower to make periodic equal payments for the life of the loan. The payments include principal and interest so the loan is fully paid off at maturity.

lump-sum payment

A one-time payment occurring at a future date is known as a(n):

Equal cash flows occurring at equal intervals for a finite period

An annuity refers to a series of:

consols

British and Canadian government bonds with no maturity date are known as:

calculating the interest earned in subsequent periods on the interest earned in prior periods.

Compounding is the process of:

Calculating the present value of cash flows to be received at some point in the future

Discounting cash flows refers to:

capital budgeting, capital structure, working capital management

List a capital budgeting​ decision, a capital structure​ decision, and a working capital management decision a business might make. That a company chooses a new product to introduce into the market is a ------ ​decision, that a company chooses to sell a bond to finance the new product is a ----------- ​decision, and that a company sets production and inventory levels on the new product is a ---------- decision.

A timeline

One technique often used in time value of money problems that provides a linear representation of cash flows is:

All of the statements

Select the statements below which correctly describe the relationship between a company and the community within which it operates. If a company fails to maintain a good relationship with the​ community, employees may not be loyal to the company causing high turnover and increased personnel costs for recruiting and training. If the firm pollutes local streams or destroys the quality of life through noise pollution or other types of​ pollution, the local community may sue the company for its damages and the best local workforce members may choose not to work for the company. A good community relationship is embedded in the goal of maximizing current share price or the equity value of the company. If a company abuses local facilities such as​ roads, and in general does not participate in the economic advancement of the local​ community, facilities such as roads and utilities may not be repaired or modernized by the local community impacting the​ company's ability to produce a profit. Maintaining a good working relationship with the surrounding community is a good business practice

False

TF A lump sum can be a​ one-time earlier but not a​ one-tiime later cash flow.

True

TF A simple percent change represents a change as part of the old or earlier value.

False

TF For a given​ mean, a larger standard deviation means that actual returns that are far from the mean are less likely to occur.

True

TF If the top of a fraction is unchanged and the bottom of a fraction decreases by​ 5%, then the value of the whole fraction would increase by approximately​ 5%.

False

TF In a Normal​ Distribution, there is a​ 68% chance that an actual return will exceed the average return plus one standard deviation.

False

TF The capital budgeting area deals with how the firm should be financed.

False

TF The goal of the corporate financial manager is to maximize the​ firm's market share.

farther, smaller

The ______ a cash flow is in the future the ________ the present value

The time value of money

The concept that a dollar received today is worth more than a dollar received at some point in the future is known as:

The value of a cash flow today

The present value is equivalent to:

maximize the current share price or equity value of the firm.

The primary goal of the financial manager is​ to:

Capital Budgeting

The process of​ planning, evaluating,​ selecting, and managing the financing of long-term operating projects of the company is termed​ ________.

compounding, discounting

__________ takes present values into the future and __________ brings future values back to the present.