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Chap006 Test Bank

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Department
Finance
Course
FIN 3715
Professor
All Professors
Semester
Fall

Description
Chapter 06Discounted Cash Flow ValuationChapter 06Discounted Cash Flow ValuationMultiple Choice Questions 1 An ordinary annuity is best defined by which one of the following A increasing payments paid for a definitive period of timeB increasing payments paid foreverC equal payments paid at regular intervals over a stated time periodD equal payments paid at regular intervals of time on an ongoing basisE unequal payments that occur at set intervals for a limited period of time 2 Which one of the following accurately defines a perpetuity A a limited number of equal payments paid in even time incrementsB payments of equal amounts that are paid irregularly but indefinitelyC varying amounts that are paid at even intervals foreverD unending equal payments paid at equal time intervalsE unending equal payments paid at either equal or unequal time intervals 3 Which one of the following terms is used to identify a British perpetuity A ordinary annuityB amortized cash flowC annuity dueD discounted loanE consol 4 The interest rate that is quoted by a lender is referred to as which one of the following A stated interest rateB compound rateC effective annual rateD simple rateE common rate 61Chapter 06Discounted Cash Flow Valuation5 A monthly interest rate expressed as an annual rate would be an example of which one of the following rates A stated rateB discounted annual rateC effective annual rateD periodic monthly rateE consolidated monthly rate 6 What is the interest rate charged per period multiplied by the number of periods per year called A effective annual rateB annual percentage rateC periodic interest rateD compound interest rateE daily interest rate 7 A loan where the borrower receives money today and repays a single lump sum on a future date is called anloan A amortizedB continuousC balloonD pure discountE interestonly 8 Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment A amortized loanB modified loanC balloon loanD pure discount loanE interestonly loan 62Chapter 06Discounted Cash Flow Valuation9 Which one of the following terms is used to describe a loan wherein each payment is equal in amount and includes both interest and principal A amortized loanB modified loanC balloon loanD pure discount loanE interestonly loan 10 Which one of the following terms is defined as a loan wherein the regular payments including both interest and principal amounts are insufficient to retire the entire loan amount which then must be repaid in one lump sum A amortized loanB continuing loanC balloon loanD remainder loanE interestonly loan 11 You are comparing two annuities which offer quarterly payments of 2500 for five years and pay 075 percent interest per month Annuity A will pay you on the first of each month while annuity B will pay you on the last day of each month Which one of the following statements is correct concerning these two annuities A These two annuities have equal present values but unequal futures values at the end of year fiveB These two annuities have equal present values as of today and equal future values at the end of year fiveC Annuity B is an annuity dueD Annuity A has a smaller future value than annuity BE Annuity B has a smaller present value than annuity A 63
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