Question 1

If the one-year discount factor is 0.8333, what is the discount rate (interest rate)per year?
A)10 percent
B)20 percent
C)30 percent
D)40 percent

Accepted Answer

The formula for calculating discount rate from discount factor is: Discount rate = [1 - (discount factor)] / [time period in years]
Here, time period is 1 year
Discount factor = 0.8333
Therefore, Discount rate = [1 - 0.8333] / 1 = 0.1667
Convert Discount rate into percentage, we get: 16.67%
Hence, the closest answer choice is B) 20 percent.

Question 2

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is:
A)$80,000.
B)$125,000.
C)$100,000.
D)$75,000.

Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods. Here, FV = $100,000, r = 25% or 0.25, and n = 1. So, PV = $100,000 / (1 + 0.25) = $100,000 / 1.25 = $80,000.

Question 3

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?
A)$250,000
B)$50,000
C)$200,000
D)-$50,000

Accepted Answer

The NPV (net present value) is calculated by subtracting the initial investment from the present value of cash flows. Therefore, NPV = $250,000 - $200,000 = $50,000. Option B is the correct answer.

Question 4

If the one-year discount factor is 0.90, what is the present value of $120 expected one year from today?
A)$100
B)$96
C)$108
D)$133

Accepted Answer

The present value is calculated by multiplying the future value by the discount factor: $120 * 0.90 = $108.

Question 5

The net present value formula for one period is: A)NPV = C₀ + [C₁/(1 + r)]. B)NPV = PV required investment. C)NPV = C₀/C₁. D)NPV = C₁/C₀.

Accepted Answer

The correct formula for net present value (NPV) for one period is NPV = Cash Flow in Period 1 / (1 + r), where r is the discount rate. Choice A, despite the garbled text, is the only option that resembles the structure of the NPV formula, indicating cash flow in the numerator and adjusting for the discount rate in the denominator.

Question 6

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000. What is the NPV of the project at a discount rate of 20 percent?
A)$176,000
B)$80,000
C)$0 (zero)
D)$64,000

Accepted Answer

The answer of An initial investment of $400,000 is expected...

Question 7

What is the present value of the following cash flows at a discount rate of 9 percent?

A)$372,431.81
B)$450,000.00
C)$405,950.68
D)$412,844.04

Accepted Answer

The answer of What is the present value of the...

Question 8

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer?

A)Option A
B)Option B
C)Option C
D)Option D

Accepted Answer

The answer of At an interest rate of 10 percent,...

Question 9

The one-year discount factor, at an interest rate of 100 percent per year, is:
A)1.50.
B)0.50.
C)0.25.
D)1.00.

Accepted Answer

Discount factor = 1/(1+r) where r is the interest rate. 
Substituting r =100%:
Discount factor = 1/(1+1) = 1/2 = 0.50.

Question 10

The one-year discount factor, at a discount rate of 25 percent per year, is:
A)1.25.
B)1.0.
C)0.8.
D)0.75.

Accepted Answer

The formula for the one-year discount factor with a discount rate of r is:
Discount factor = 1 / (1 + r)
Substituting r = 0.25, we get:
Discount factor = 1 / (1 + 0.25) = 0.8
Therefore, the answer is option C.

Question 11

If the present value of cash flow X is $240, and the present value of cash flow Y is $160, then the present value of the combined cash flows is:
A)$240.
B)$160.
C)$80.
D)$400.

Accepted Answer

The present value of the combined cash flows is the sum of the present values of each cash flow, which is $240 + $160 = $400.

Question 12

If the annual interest rate is 12 percent, what is the two-year discount factor?
A)0.7972
B)0.8929
C)1.2544
D)0.8065

Accepted Answer

The two-year discount factor can be calculated using the formula 1 / (1 + r)^n, where r is the annual interest rate (expressed as a decimal) and n is the number of years. Here, r = 0.12 and n = 2, so the discount factor = 1 / (1 + 0.12)^2 = 1 / (1.12)^2 = 1 / 1.2544 = 0.7972.

Question 13

If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?
A)15 percent
B)20 percent
C)25 percent
D)50 percent

Accepted Answer

The discount rate can be found using the formula for present value: Present Value = Future Value / (1 + Discount Rate). Plugging in the given values: $400 = $600 / (1 + Discount Rate). Solving for the discount rate gives a rate of 50%.

Question 14

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?
A)0.8333
B)1.20
C)0.20
D)1.00

Accepted Answer

Discount factor = Present value / Future value
Discount factor = $400 / $480
Discount factor = 0.8333

Question 15

Present value is defined as: A)future cash flows discounted to the present by an appropriate discount rate. B)inverse of future cash flows. C)present cash flows compounded into the future. D)future cash flows multiplied by the factor (1 + r)^t.

Accepted Answer

Present value is the current value of a future stream of cash flows, discounted at an appropriate rate of interest to compensate for the time value of money and the risk associated with receiving the cash flows in the future. Option A accurately describes the concept of present value. Option B is incorrect as it describes the reciprocal or inverse of future cash flows. Option C describes the concept of compounding which is the process of generating future value. Option D is incorrect as it is a non-existent formula.

Question 16

The rate of return is also called the:
A)discount rate.
B)discount rate and hurdle rate only.
C)discount rate, hurdle rate, and opportunity cost of capital.
D)discount rate and opportunity cost of capital only.

Accepted Answer

The rate of return encompasses the discount rate, hurdle rate, and opportunity cost of capital. Therefore, the best choice is C. Choice A is incorrect because it only includes the discount rate, whereas the rate of return encompasses more than just the discount rate. Choice B is incorrect because it only includes the discount rate and hurdle rate, whereas the rate of return encompasses more than just those two. Choice D is incorrect because it only includes the discount rate and opportunity cost of capital, whereas the rate of return encompasses more than just those two.

Question 17

The present value formula for a cash flow expected one period from now is: A)PV = C₁× (1 + r). B)PV = C₁/(1 + r). C)PV = C₁/r. D)PV = (1 + r)/C₁.

Accepted Answer

The present value formula for a cash flow expected one period from now is PV = C₁/(1 + r), where C_{1 is the cash flow in period one,} is the discount factor for period one, and r is the discount rate. This formula discounts the future cash flow to its present value, taking into account the time value of money.

Question 18

The present value of $121,000 expected one year from today at an interest rate (discount rate)of 10 percent per year is:
A)$121,000.
B)$100,000.
C)$110,000.
D)$108,900.

Accepted Answer

The answer of The present value of $121,000 expected one...

Question 19

The present value of $100 expected two years from today at a discount rate of 6 percent is
A)$112.36.
B)$106.00.
C)$100.00.
D)$89.00.

Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($100), r is the discount rate (0.06), and n is the number of periods (2 years). Plugging in the values, we get PV = $100 / (1 + 0.06)^2 = $100 / 1.1236 = $89.00.

Question 20

If the present value of $250 expected one year from today is $200, what is the one-year discount rate?
A)10 percent
B)20 percent
C)25 percent
D)30 percent

Accepted Answer

The present value (PV) formula is PV = FV / (1 + r), where FV is the future value and r is the discount rate. Plugging in the values: $200 = $250 / (1 + r). Solving for r gives r = ($250/$200) - 1 = 0.25 or 25 percent.

Quiz 2: How to Calculate Present Values

If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?

The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is:

If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?

If the one-year discount factor is 0.90, what is the present value of $120 expected one year from today?

The net present value formula for one period is:

An initial investment of $400,000 is expected to produce an end-of-year cash flow of $480,000. What is the NPV of the project at a discount rate of 20 percent?

What is the present value of the following cash flows at a discount rate of 9 percent?

At an interest rate of 10 percent, which of the following sequences of cash flows should you prefer?

The one-year discount factor, at an interest rate of 100 percent per year, is:

The one-year discount factor, at a discount rate of 25 percent per year, is:

If the present value of cash flow X is $240, and the present value of cash flow Y is $160, then the present value of the combined cash flows is:

If the annual interest rate is 12 percent, what is the two-year discount factor?

If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?

If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?

Present value is defined as:

The rate of return is also called the:

The present value formula for a cash flow expected one period from now is:

The present value of $121,000 expected one year from today at an interest rate (discount rate) of 10 percent per year is:

The present value of $100 expected two years from today at a discount rate of 6 percent is

If the present value of $250 expected one year from today is $200, what is the one-year discount rate?