SMG FE 101 Lecture 6: Growing Cash Flows
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Que: - (1)
Which one of the following statements is true about an amortized loan?
A. | With an amortized loan, a smaller proportion of each monthâs payment goes toward interest in the early periods. | |
B. | With an amortized loan, a bigger proportion of each monthâs payment goes toward interest in the later periods. | |
C. | With an amortized loan, a bigger proportion of each monthâs payment goes toward interest in the early periods. | |
D. | With an amortized loan, the proportion of the loan that goes toward interest does not change at any point. |
(2) Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called:
A. | an annuity due. | |
B. | a growing perpetuity. | |
C. | an ordinary annuity. | |
D. | a growing annuity. |
(3)
If your investment pays the same amount at the end of each year forever, the cash flow stream is called:
A. | an ordinary annuity. | |
B. | a perpetuity. | |
C. | an annuity due. | |
D. | none of the above. | |
(4)
Use the following table to calculate the expected return for the asset. | |
Return | Probability |
0.10 | 0.30 |
0.20 | 0.50 |
0.25 | 0.25 |
A. | 15.0% | |
B. | 17.5% | |
C. | 18.75% | |
D. | 19.25% |
(5)
George purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is the total return to George from owning the stock? (Round your answer to the nearest whole percent.)
A. | 5% | |
B. | 44% | |
C. | 35% | |
D. | 50% |
(6)
Barbara purchased a piece of real estate last year for $85,000. The real estate is now worth $102,000. If Barbara needs to have a total return of 25 percent during the year, then what is the dollar amount of income that she needed to have to reach her objective?
A. | $3,750 | |
B. | $4,250 | |
C. | $4,750 | |
D. | $5,250 |
(7)
The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz?
A. | 8.40% | |
B. | 10.80% | |
C. | 13.80% | |
D. | 19.20% |