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FIN 571 Wk 3 - Practice: Wk 3 Practice Questions

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FIN 571 Wk 3 - Practice: Wk 3 Practice Questions

"Give me $5,000 today and I'll return $10,000 to you in 5 years," offers the investment broker. To the nearest percent, what annual interest rate is being offered?

Multiple Choice

  •      12.29%
  •      13.67%
  •      14.87%
  •      12.84%

 

 

If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with annual payments of $11,680.36, how much interest (as opposed to return of capital) is paid in the last year of the loan?

 

Multiple Choice

  •      $918.25
  •      $942.51
  •      $978.43
  •      $964.43

 

What is the relationship between an annually compounded rate and the annual percentage rate (APR) which is calculated for truth-in-lending laws for a loan requiring monthly payments?

Multiple Choice

  •      The APR is lower than the annually compounded rate.
  •      The APR is higher than the annually compounded rate.
  •      The APR equals the annually compounded rate.
  •      The answer depends on the interest rate.

 

 

For mutually exclusive projects, the IRR can be used to select the best project:

Multiple Choice

  •      by calculating the modified internal rate of return.
  •      by calculating the IRR based on incremental cash flows.
  •      by using the discount rate to calculate the IRR.
  •      never. IRR cannot be utilized for mutually exclusive projects.

 

 

Firms that make investment decisions based on the payback rule may be biased toward rejecting projects:

Multiple Choice

  •      with short lives.
  •      with long lives.
  •      with late cash inflows.
  •      that have negative NPVs.
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