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Exam 6: Discounted Cash Flows and Valuation

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Question 51

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If your investment pays the same amount at the end of each year for a period of six years, the cash flow stream is called

A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.

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Question 52

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What was the purpose behind the passage of the two consumer protection acts discussed in this chapter?

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In 1968, Congress passed the Truth-in-Le...

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Question 53

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Annuity due: Jenny Abel is investing $2,500 today and will do so at the beginning of each of the next six years for a total of seven payments. If her investment can earn 12 percent, how much will she have at the end of seven years? (Round to the nearest dollar.)

Computing annuity payment: John Harper has borrowed $17,400 to pay for his new truck. The annual interest rate on the loan is 9.4 percent, and the loan needs to be repaid in four payments. What will be his annual payment if he begins his payment beginning now? (Round to the nearest dollar.)

The APR is defined as the simple interest charged per period multiplied by the number of periods per year.

The quoted interest rate is by convention a simple annual interest rate, such as the APR.

Calculating the present and future values of multiple cash flows is relevant for businesses only.

In computing the present and future value of multiple cash flows,

FV of multiple cash flows: Tariq Aziz will receive from his investment cash flows of $3,125, $3,450, and $3, 800. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at the end of three years? (Round to the nearest dollar.)

In today's financial markets, the best example of a perpetuity is the common stock issued by firms.

Calculating the present and future values of multiple cash flows is relevant only for individual investors.

Which one of the following statements is NOT true?

The lease payments by a business on a warehouse rental are an example of an annuity due.

FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows starting at the end of the year-$113,245, $132,709, $141,554, and $180,760. If their opportunity cost is 9.6 percent, find the future value of these cash flows. (Round to the nearest dollar.)

Present value of an annuity: Transit Insurance Company has made an investment in another company that will guarantee it a cash flow of $37,250 each year for the next five years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? (Round to the nearest dollar.)

FV of multiple cash flows: Shane Matthews has invested in an investment that will pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.)

Which one of the following statements is NOT true?