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1、Chapter 04 - Discounted Cash Flow ValuationChapter 04 Discounted Cash Flow Valuation Answer Key Multiple Choice Questions1.An annuity stream of cash flow payments is a set of:A.level cash flows occurring each time period for a fixed length of time.B.level cash flows occurring each time period foreve
2、r.C.increasing cash flows occurring each time period for a fixed length of time.D.increasing cash flows occurring each time period forever.E.arbitrary cash flows occurring each time period for no more than 10 years.Difficulty level: EasyTopic: ANNUITYType: DEFINITIONS2.Annuities where the payments o
3、ccur at the end of each time period are called _, whereas _ refer to annuity streams with payments occurring at the beginning of each time period.A.ordinary annuities; early annuitiesB.late annuities; straight annuitiesC.straight annuities; late annuitiesD.annuities due; ordinary annuitiesE.ordinary
4、 annuities; annuities dueDifficulty level: EasyTopic: ANNUITIES DUEType: DEFINITIONS3.An annuity stream where the payments occur forever is called a(n):A.annuity due.B.indemnity.C.perpetuity.D.amortized cash flow stream.E.amortization table.Difficulty level: EasyTopic: PERPETUITYType: DEFINITIONS4.T
5、he interest rate expressed in terms of the interest payment made each period is called the _ rate.A.stated annual interestB.compound annual interestC.effective annual interestD.periodic interestE.daily interestDifficulty level: EasyTopic: STATED INTEREST RATESType: DEFINITIONS5.The interest rate exp
6、ressed as if it were compounded once per year is called the _ rate.A.stated interestB.compound interestC.effective annualD.periodic interestE.daily interestDifficulty level: EasyTopic: EFFECTIVE ANNUAL RATEType: DEFINITIONS6.The interest rate charged per period multiplied by the number of periods pe
7、r year is called the _ rate.A.effective annualB.annual percentageC.periodic interestD.compound interestE.daily interestDifficulty level: EasyTopic: ANNUAL PERCENTAGE RATEType: DEFINITIONS7.Paying off long-term debt by making installment payments is called:A.foreclosing on the debt.B.amortizing the d
8、ebt.C.funding the debt.D.calling the debt.E.None of the above.Difficulty level: EasyTopic: AMORTIZATIONType: DEFINITIONS8.You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of e
9、ach month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?A.Both annuities are of equal value today.B.Annuity B is an annuity due.C.Annuity A has a higher future value than annuity B.D.Annuity B has a higher present
10、value than annuity A.E.Both annuities have the same future value as of ten years from today.Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: CONCEPTS9.You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you
11、 with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?A.Both options are o
12、f equal value given that they both provide $20,000 of income.B.Option A is the better choice of the two given any positive rate of return.C.Option B has a higher present value than option A given a positive rate of return.D.Option B has a lower future value at year 5 than option A given a zero rate
13、of return.E.Option A is preferable because it is an annuity due.Difficulty level: MediumTopic: UNEVEN CASH FLOWS AND PRESENT VALUEType: CONCEPTS10.You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects?I. Both projects
14、have the same future value at the end of year 4, given a positive rate of return.II. Both projects have the same future value given a zero rate of return.III. Both projects have the same future value at any point in time, given a positive rate of return.IV. Project A has a higher future value than p
15、roject B, given a positive rate of return.A.II onlyB.IV onlyC.I and III onlyD.II and IV onlyE.I, II, and III onlyDifficulty level: MediumTopic: UNEVEN CASH FLOWS AND FUTURE VALUEType: CONCEPTS11.A perpetuity differs from an annuity because:A.perpetuity payments vary with the rate of inflation.B.perpetuity payments vary with the market rate of interest.C.perpetuity payments are variable while annuity p
