Exam (elaborations)

Introduction to Finance 2024

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Course
Comm 309 (COMM309)

Institution
Concordia University ( )

Providing suggested solutions to the problems stated in the exam. Chapter 5: Time value of money

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Uploaded on March 24, 2025
Number of pages 16
Written in 2023/2024
Type Exam (elaborations)
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COMM 309
Mid Term, Summer 2024
Instructor: Dr. Wajeeh Elali
Date: June 2024
Time: 2 3/4 hours
Student Name:
Student ID:
Section: AA & AB

Suggested Solutions
INSTRUCTIONS:
• This is a closed book examination.
• This examination consists of (40) questions as follows:
20 M/C Conceptual Questions (Total Marks: 40 marks)
20 M/C Quantitative Questions (Total Marks: 60 marks)
¨ All answers must be recorded IN PENCIL on the computer sheet. Only the computer
sheet will be graded. Use an HB-pencil. Forms filled out in pen or marker cannot be
read. The scanning program will ignore these entries and return blank results and
questions will not be considered as answered.
¨ You are permitted noiseless, non-programmable Calculators.
¨ You are allowed to bring one language dictionary (no finance / mathematics /
economics, etc … dictionary).
¨ A formula sheet is attached to your exam.
¨ This examination is worth 40% of your final mark.

Good luck!

Honor Code
In recognition and spirit of the Honor Code, I certify that I have not and will not receive
or give aid on the examination and that I will report, to the best of my ability, all honor
Code violations observed by me.
Signed_________________________________________________

THIS EXAMINATION PAPER MUST BE RETURNED

, 2

Part I
Multiple Choice – Conceptual Questions (40 Points Total):
This part consists of 20 Multiple Choice Questions. Each question is worth 2 points.
- Only answers on the computer answer sheet will be graded.
- Use a pencil to mark your answers on the Computer Sheet.

Q1. Which of the following is NOT common between the IRR and NPV
methods of capital budgeting analysis?

a) both methods include all cash flows
b) both methods consider the time value of money
c) both methods allow for the use of more than one discount rate
d) both methods are based on an objective rate of return

Q2. Which of the following statements is most correct?

a. A Retractable Bond is a bond that can be swapped for a fixed
number of shares of stock anytime before maturity at the holder’s
option.
b. If a bond’s yield to maturity exceeds its coupon rate, the bond’s price
must be less than its face value.
c. If two bonds have the same maturity, the same yield to maturity, and
the same level of risk, the bonds should sell for the same price
regardless of the bond’s coupon rate.
d. Answers a, b and c are correct.
e. None of the above.

Q3. Which of the following statements is FALSE?

a) Positive NPVs arise only in situations in which a company has a
competitive advantage.
b) Projects that produce an NPV of zero should be rejected.
c) The market value of any firm in an efficient market should equal the
present value of its expected after-tax cash flows.
d) Because of the competitive nature of today’s business environment, we
would not expect to see an abundance of positive NPV opportunities to
persist for very long.

, 3

Q4. Consider the following graph:

$4,000.00

$2,000.00

$0.00
0 0.1 0.2 0.3 0.4 0.5 0.6
($2,000.00)
NPV

($4,000.00)

($6,000.00)

($8,000.00)

($10,000.00)
Rate

Which capital budget criterion would yield contradictory conclusions about this
project?
a) Net present value (NPV)
b) Payback period (PP)
c) Discounted payback period (DPP)
d) Internal rate of return (IRR)
e) Profitability Index (PI)

Q5. Which of the following statements is true?
a. Regardless of the value of the interest rate, increasing the
compounding frequency will decrease the future value.
b. Regardless of the value of the interest rate, increasing the
compounding frequency will increase the future value.
c. There is a relationship between the future value of investment and the
effect of compounding frequency. At high interest rates, increases in
compounding frequency will decrease the future value.
d. There is a relationship between the future value of investment and the
effect of compounding frequency. At low interest rates, increases in
compounding frequency will decrease the future value.

Q6. If the compound period is greater than one:
a. the effective annual interest rate is always equal to the annual
percentage rate.
b. the effective annual interest rate is always less than the annual
percentage rate.
c. the effective annual interest rate is always greater than the annual
percentage rate.
d. the effective annual interest rate is never greater than the annual
percentage rate.
e. none of the above.

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