# Time Value

Topics: Net present value, Investment, Stock Pages: 40 (11020 words) Published: January 1, 2012
TIME VALUE OF MONEY
1. If you were scheduled to receive Rs 100,000 five years hence, but you wish to sell your contract note for its present value, which type of compounding would you rather have the purchaser of your contract note to use to find the purchase price, 8 percent compounded: (a) (b) (c) (d) (e) Continuously Quarterly Semi-annually Annually None of the above

2. According to the rule of 69, the doubling period is equal to (a) (b) (c) (d) (e) 0.25 + (69/ Interest rate) 0.35 + (69/ Interest rate) 0.69 + (0.35/ Interest rate) 0.69 + (0.25 / Interest rate) None of the above

3. For a depositor, when the frequency of compounding is increased (a) (b) (c) (d) (e) Additional gains increase Additional gains dwindle Additional gains are unaffected There are no additional gains None of the above

4. Present value interest factor of a perpetuity represents (a) (b) (c) (d) (e) Interest rate in percentage terms Reciprocal of interest rate in percentage terms Reciprocal of interest rate in decimal terms Interest rate in decimal terms None of the above

5. The present value of a perpetuity of one rupee when the interest rate is r percent is: (a) (b) (c) (d) (e) 1/r 1/ r2 1/r0.5 2 r2 None of the above 1

6. The present value of an annuity due is equal to the present value of a regular annuity multiplied by : (a) (b) (c) (d) (e) r (1 + r) 1/r r(1 + r) None of the above

7. Recurring deposit in a bank is a typical example of: (a) (b) (c) (d) (e) Deferred annuity Annuity due Regular annuity Compound annuity None of the above

8. Deposits in a sinking fund is an example of: (a) (b) (c) (d) (e) Deferred annuity Annuity due Regular annuity Either a or c None of the above

9. In a loan amortisation schedule, as the number of years increases: (a) (b) (c) (d) (e) The interest amount increases The principal repayment amount increases The annual installment amount decreases Both a and c None of the above KEY 1 (d) 2 (b) 3 (b) 4 (c) 5 (a) 6 (b) 7 (b) 8 (d) 9 (a)

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VALUATION OF STOCKS AND BONDS
1. The annual interest on a bond in relation to its prevailing market price is called its: (a) (b) (c) (d) (e) Coupon rate Promised yield Current yield Yield to maturity None of the above

2. Internal rate of return on a bond investment is its (a) (b) (c) (d) (e) Current yield Yield to maturity Holding period return Realised yield None of the above

3. The constant-growth dividend discount model will not produce a finite value if the dividend growth rate is: (a) (b) (c) (d) (e) Above its historical average Below its historical average Above the market capitalisation rate Below the market capitalisation rate None of the above

4. For any given stock, which of the following must be true? (a) (b) (c) (d) (e) Market value  book value  par value Book value  market value  par value Par value  market value  book value Par value = book value  market value None of the above must be true

5. Limited growth prospects are indicated by (a) (b) (c) (d) (e) High dividend High P/E ratio Low dividend High dividend and low P/E ratio None of the above

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6. Riskier stocks have (a) (b) (c) (d) (e) Higher P/E multiple Lower P/E multiple Higher variance (b) and (c) None of the above

7. Which of the following is not true? (a) (b) (c) (d) (e) Earnings-price ratio is equal to r when PVGO is zero Earnings-price ratio is less than r when PVGO is positive Earnings-price ratio is less than r when PVGO is negative Earnings-price ratio is more than r when PVGO is negative None of the above

8. An increase in the market value of a company indicates: (a) (b) (c) (d) (e) Increase in profitability Increase in revenues Increase in future prospects All the above None of the above

9. Intrinsic value of a security is its: (a) (b) (c) (d) (e) DCF value Book value Real value Market capitalization value None of the above

10. Which one of the following is not a major driver of growth? (a) (b) (c) (d) (e) Sales growth ratio Ploughback...