Valuation Quiz

Which of the following best describes the relationship between present value (PV) and the discount rate, assuming all other factors remain constant?

• As the discount rate increases, PV decreases.

• As the discount rate increases, PV increases.

• The discount rate has no impact on PV.

• PV is always equal to the discount rate.

Which of the following best defines a perpetuity?

• A stream of cash flows that lasts for a fixed period.

• A single sum of money in the future.

• A constant stream of cash flows that lasts forever.

• A variable stream of cash flows that changes over time.

What is the future value of $500 invested for 5 years at an interest rate of 6% compounded annually?

• $669.10

• $670.20

• $698.63

• $750.00

If the present value of a perpetuity is $1,000 and the discount rate is 5%, what is the annual cash flow from this perpetuity?

• $10

• $50

• $200

• $500

An ordinary annuity makes payments at the ________ of each period, whereas an annuity due makes payments at the ________ of each period.

• Beginning; End

• Middle; End

• End; Beginning

• Beginning; Middle

How much will you have in 4 years if you invest $1,000 today in an account that pays 7% interest, compounded annually?

• $1,310.80

• $1,287.24

• $1,000.00

• $1,131.48

Which formula correctly represents the Present Value of a Perpetuity?

• PV = C/r

• PV = C * (1 + r)^t

• PV = C/[(1 + r)^t]

• PV = C * r

What would be the present value of an ordinary annuity of $200 per year for 5 years at a discount rate of 10%?

• $758.16

• $833.97

• $943.92

• $1,020.41

If you are to receive $500 at the end of each of the next 3 years, what is the present value of these cash flows given a discount rate of 8%?

• $1,288.55

• $1,381.41

• $1,428.57

• $1,500.00

If you deposit $300 at the end of each year for 3 years in an account paying 5% annually, what will be the future value at the end of the third year?

• $945.75

• $909.09

• $990.00

• $927.50