Corporate Finance Questions and Correct Answers & Latest Updated
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Course
Corporate Finance
Institution
Corporate Finance
Which loan type requires the borrower to repay a single lump sum payment at some time
in the future with interest?
o :## pure discount
Pure Discount Loans are the simplest form of loan.
Which loan type requires calls for the borrower to pay interest each period and to repay the
entire princi...
Corporate Finance Questions and Correct
Answers & Latest Updated
Which loan type requires the borrower to repay a single lump sum payment at some time
in the future with interest?
o :## pure discount
Pure Discount Loans are the simplest form of loan.
Which loan type requires calls for the borrower to pay interest each period and to repay the
entire principal at some point in the future?
o :## Interest-only
Suppose a business takes out a $7,000, five-year loan at 6 percent that will be paid annually
with a single, fixed payment each period. How much will be the annual payment?
o :## I/Y = 6
N=5
PV = -7,000
FV= 0
=1,661.77
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,2|Page: 2024/2025 Grade A+
What is the net present value (NPV) of the following sequence of cash flows at a discount
rate of 9 percent?
t = 0 = 250,000
t = 1 = 100,000
t = 2 = 150,000
t = 3 = 200,000
o :## 122,431.81
If you are paid $1,000 at the end of each year for the next five years, what type of cash flow
did you receive?
o :## An annuity
If the present value of $1 received n years from today at an interest rate of r is 0.3855, then
what is the future value of $1 invested today at an interest rate of r percent for n years?
o :## $2.594
FV= 1/(.3855)
An annuity is defined as a set of:
o :## equal cash flows occurring at equal intervals of time for a specified period.
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,3|Page: 2024/2025 Grade A+
John House has taken a $250,000 mortgage on his house at an interest rate of 6 percent per
year. If the mortgage calls for 20 equal, annual payments, what is the amount of each
payment?
o :## 21,796.14
FV= 0
PV = -250,000
N = 20
I/Y = 6
After retirement, you expect to live for 25 years. You would like to have $75,000 income
each year. How much should you have saved in your retirement account to receive this
income, if the annual interest rate is 9 percent per year? (Assume that the payments start
on the day of your retirement.)
o :## 802,995.88
[(75,000/.09) × [1 - (1/(1.09^25)]] × (1.09)
At an interest rate of 10 percent, which of the following sequences of cash flows should you
prefer?
Year 1
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
, 4|Page: 2024/2025 Grade A+
Year 2
Year 3
A 500 300 100
B 100 300 500
C 300 300 300
Any of the above as they all add up to $900
o :## For all of these, enter them in as cash flows like regular, but skip the C0 and just go right
to C1, then calculate for NPV
A = 777.61
B = 714.50
C = 746.05
So A is preferred
The opportunity cost of capital for a risky project is:
o :## the expected rate of return on a security of similar risk as the project.
The concept of compound interest is best described as:
o :## interest earned on interest.
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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