F.Market - Quiz 1

Statement I: Starting to invest early for retirement increases the benefits of compound interest.

Statement II: A timeline is meaningful even if all cash flows do not occur annually.

Statement III: If the discount (or interest) rate is positive, the present value of an expected series of payments will always exceed the future value of the same series.

• True, False, True

• False, True, True

• True, True, False

• All True

• Answer not Given

Statement I: Disregarding risk, if money has time value, it is impossible for the future value of a given sum to exceed its present value.

Statement II: If a bank compounds savings accounts quarterly, the effective annual rate will exceed the nominal rate.

Statement III: Starting to invest early for retirement increases the benefits of compound interest.

• True, False, True

• False, True, True

• True, True, False

• All True

• Answer not Given

Statement I:  A timeline is meaningful even if all cash flows do not occur annually.

Statement II: Timelines can be constructed in situations where some of the cash flows occur annually, but others occur quarterly.

Statement III: Some of the cash flows shown on a timeline can be in the form of annuity payments while others can be uneven amounts.

Statement IV: If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series.

• True, False, True, False

• False, True, True, True

• True, True, False, True

• All True

• Answer not given

Which of the following statements is CORRECT?

• A timeline is not meaningful unless all cash flows occur annually.

• Timelines are useful for visualizing complex problems prior to doing actual calculations.

• Timelines cannot be constructed in situations where some of the cash flows occur annually, but others occur quarterly.

• Timelines cannot be constructed for annuities where the payments occur at the beginning of the periods.

• Some of the cash flows shown on a timeline can be in the form of annuity payments, but none can be uneven amounts.

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

• The cash flows are in the form of a deferred annuity, and they total to P100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for P20,000 rather than for P10,000.

• The discount rate increases.

• The riskiness of the investment's cash flows decreases.

• The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.

• The discount rate decreases.

Which of the following statements is CORRECT?

• The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods.

• If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is an annuity.

• The cash flows for an annuity due must all occur at the ends of the periods.

• The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month.

• If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity.

Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

• The periodic rate of interest is 1.5% and the effective rate of interest is 3%.

• The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.

• The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.

• The periodic rate of interest is 3% and the effective rate of interest is 6%.

• The periodic rate of interest is 6% and the effective rate of interest is also 6%.

Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

• The periodic rate of interest is 2% and the effective rate of interest is 4%.

• The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.

• The periodic rate of interest is 4% and the effective rate of interest is less than 8%.

• The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

• The periodic rate of interest is 8% and the effective rate of interest is also 8%.

Which of the following statements is CORRECT?

• If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction.

• If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.

• Only institutions, and not individuals, can engage in derivative market transactions.

• As they are generally defined, money market transactions involve debt securities with maturities of less than one year.

• All Statements are Correct

Mandated to ensure that their respective countries have a stable and healthy financial system. They oversee the operations of their entire financial system and mandate the rules, regulations, and monetary policies that will help them maintain a healthy and stable economy.

• The Government

• Central Banks

• Financial Institutions

• Household/ Consumer