Financial Analysis & Decision Making - Quiz 1

Time value of money indicates that

• A unit of money obtained today is worth more than a unit of money obtained in future

• A unit of money obtained today is worth less than a unit of money obtained in future

• There is no difference in the value of money obtained today and tomorrow

• None of the above

Time value of money supports the comparison of cash flows recorded at different time period by

• Discounting all cash flows to a common point of time

• Compounding all cash flows to a common point of time

• Using either (a) or (b)

• None of the above

If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effective rate of interest will be:

• 10% per annum

• 10.10 per annum

• 10.25%per annum

• 10.38% per annum

Relationship between annual nominal rate of interest and annual effective rate of interest, if frequency of compounding is greater than one:

• Effective rate > Nominal rate 

• Effective rate < Nominal rate

• Effective rate = Nominal rate

• None of the above

Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per annum. The first installment will be paid at the end of year 5. Determine the amount of equal annual installments if Mr. X wishes to repay the amount in five installments.

• Rs 19500

• Rs 19400

• Rs 19310

• None of the above

Present value tables for annuity cannot be straight away applied to varied stream of cash flows.

• True

• False

To find the present value of a sum of Rs. 10,000 to be received at the end of each year for the next 5 years at 10% rate, we use:

• Present value of a single cash flow table

• Present value of annuity table.

• Future value of a single cash flow table

• Future value of annuity table

If a loan of Rs. 30,000 is to be paid in 5 annual installments with interest rate of 12% p.a. then the equal annual installment will be:

• Rs. 7400 

• Rs. 8100 

• Rs. 7812

• Rs. 8322

A bond has a face value of Rs. 1000 and a coupon rate of 10%. It will be redeemed after 4 years at 10% premium. Find the present value of bond at a required rate of 12%:

• Rs. 1002.80

• Rs. 960.72

• Rs. 980.84

• Rs. 1020.12

In 3 years you are to receive Rs. 5,000. If the interest rate were to suddenly increase, the present value of that future amount to you would

• Fall

• Rise

• remain unchanged

• cannot be determined without more information