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Bài test tiếng Anh ngành ngân hàng và đáp án phần 6

Parrino/Fundamentals of Corporate Finance, Test Bank, Chapter 6

Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
1. Calculating the present and future values of multiple cash flows is relevant only for
individual investors.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
2. Calculating the present and future values of multiple cash flows is relevant for
businesses only.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy

3. In computing the present and future value of multiple cash flows, each cash flow is
discounted or compounded at a different rate.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 1
Level of Difficulty: Easy
4. The present value of multiple cash flows is greater than the sum of those cash flows.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
5. When you pay the same amount every month as your insurance premium for a term life
policy for a period of five years, the stream of cash flows is called a perpetuity.
A) True
B) False
Ans: B
Page 1


Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
6. When you pay the same amount every month on your car loan for a period of three
years, the stream of cash flows is called an annuity.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
7. In today's financial markets, the best example of a perpetuity is the common stock
issued by firms.
A) True
B) False
Ans: B
Format: True/False


Learning Objective: LO 3
Level of Difficulty: Easy
8. Since the issuers of preferred stock promise to pay investors a fixed dividend, usually
quarterly, forever, these are the most important perpetuities in the financial markets.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 3
Level of Difficulty: Easy
9. The present value of a perpetuity is the promised constant cash payment divided by the
interest rate (i).
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
10. In ordinary annuities, cash flows occur at the beginning of each period.
A) True
B) False
Ans: B

Page 2


Format: True/False
Learning Objective: LO 2
Level of Difficulty: Easy
11. In an annuity due, cash flows occur at the beginning of each period.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
12. The lease payments by a business on a warehouse rental are an example of an annuity
due.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
13. The present value of an annuity due is less than the present value of an ordinary
annuity.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
14. The present value of an annuity due is equal to the present value of an ordinary annuity.
A) True
B) False
Ans: B

Page 3


Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
15. The future value of an annuity due is greater than the future value of an ordinary
annuity.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 2
Level of Difficulty: Medium
16. The future value of an annuity due is equal to the future value of an ordinary annuity.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 4
Level of Difficulty: Easy
17. Cash flow streams that increase at a constant rate over time are called growing
annuities or growing perpetuities.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
18. A fertilizer manufacturing company enters into a contract with a county parks and
recreation department that calls for the company to sell 10 percent more of its best lawn
feed every year for the next five years. If they also agree to maintain the total price as
constant over the contract period, this growth in revenue is an example of a growing
perpetuity.
A) True
B) False
Ans: B

Page 4


Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
19. You have received news about an inheritance that will pay you $5,000 next year.
Beginning the following year, your inheritance will increase by 5 percent every year
forever. This is a growing perpetuity.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 4
Level of Difficulty: Medium
20. Trey Hughes opened a pizza place last year. He expects to increase his revenue from
last year by 7 percent every year for the next 10 years. This is an example of a growing
annuity.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Easy
21. The APR is the annualized interest rate using compound interest.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
22. The APR is defined as the simple interest charged per period multiplied by the number
of periods per year.
A) True
B) False
Ans: A

Page 5


Format: True/False
Learning Objective: LO 5
Level of Difficulty: Easy
23. The correct way to annualize an interest rate is to compute the effective annual interest
rate.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
24. The correct way to annualize an interest rate is to compute the annual percentage rate
(APR).
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
25. The effective annual interest rate (EAR) is defined as the annual growth rate that takes
compounding into account.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
26. The EAR is the true cost of borrowing and lending.
A) True
B) False
Ans: A

Page 6


Format: True/False
Learning Objective: LO 5
Level of Difficulty: Easy
27. The quoted interest rate is by convention a simple annual interest rate, such as the
APR.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Easy
28. The quoted interest rate is by definition a simple annual interest rate, such as the EAR.
A) True
B) False
Ans: B
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Easy
29. The Truth-in-Lending Act and the Truth-in-Savings Act require by law that the APR
be disclosed on all consumer loans and savings plans and that it be prominently
displayed on advertising and contractual documents.
A) True
B) False
Ans: A
Format: True/False
Learning Objective: LO 5
Level of Difficulty: Medium
30. Only the APR or some other quoted rate should be used as the interest rate factor for
present or future value calculations.
A) True
B) False
Ans: B

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Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
31. To solve future value problems with multiple cash flows involves which of the
following steps?
A) First, draw a time line to make sure that each cash flow is placed in the correct time
period.
B) Second, calculate the future value of each cash flow for its time period.
C) Third, add up the future values.
D) All of the above are necessary steps.
Ans: D
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
32. Which one of the following steps is NOT involved in solving future value problems?
A) First, draw a time line to make sure that each cash flow is placed in the correct time
period.
B) Second, discount each cash flow for its time period.
C) Third, add up the values.
D) All of the above are necessary steps.
Ans: B
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
33. To solve present value problems with multiple cash flows involves which of the
following steps?
A) First, draw a time line to make sure that each cash flow is placed in the correct time
period.
B) Second, calculate the present value of each cash flow for its time period.
C) Third, add up the present values.
D) All of the above are necessary steps.
Ans: D

Page 8


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
34. Which one of the following steps is NOT involved in solving present value problems?
A) First, draw a time line to make sure that each cash flow is placed in the correct time
period.
B) Second, compound each cash flow for its time period.
C) Third, add up the values.
D) All of the above are necessary steps.
Ans: B
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: easy
35. Calculating the present and future values of multiple cash flows is relevant
A) for businesses only.
B) for individuals only
C) for both individuals and businesses.
D) none of the above.
Ans: C
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
36. In computing the present and future value of multiple cash flows,
A) each cash flow is discounted or compounded at the same rate.
B) each cash flow is discounted or compounded at a different rate.
C) earlier cash flows are discounted at a higher rate.
D) later cash flows are discounted at a higher rate.
Ans: A
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
37. In computing the present and future value of multiple cash flows,
A) earlier cash flows are discounted at a lower rate.
B) each cash flow is discounted or compounded at the same rate.
C) earlier cash flows are discounted at a higher rate.
D) none of the above.
Ans: B

Page 9


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
38. The present value of multiple cash flows is
A) greater than the sum of the cash flows.
B) equal to the sum of all the cash flows.
C) less than the sum of the cash flows.
D) none of the above.
Ans: C
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Easy
39. The future value of multiple cash flows is
A) greater than the sum of the cash flows.
B) equal to the sum of all the cash flows.
C) less than the sum of the cash flows
D) none of the above.
Ans: A
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
40. If your investment pays the same amount at the end of each year for a period of six
years, the cash flow stream is called
A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.
Ans: B
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
41. If your investment pays the same amount at the beginning of each year for a period
of 10 years, the cash flow stream is called
A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.
Ans: C

Page 10


Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
42. If your investment pays the same amount at the end of each year forever, the cash
flow stream is called
A) a perpetuity.
B) an ordinary annuity.
C) an annuity due.
D) none of the above.
Ans: A
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
43. Cash flows associated with annuities are considered to be
A) an uneven cash flow stream.
B) a cash flow stream of the same amount (a constant cash flow stream).
C) a mix of constant and uneven cash flow streams.
D) none of the above.
Ans: B
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
44. Which ONE of the following statements is true about amortization?
A) Amortization refers to the way the borrowed amount (principal) is paid down over the life
of the loan.
B) With an amortized loan, each loan payment contains some payment of principal and an
interest payment.
C) A loan amortization schedule is just a table that shows the loan balance at the beginning
and end of each period, the payment made during that period, and how much of that
payment represents interest and how much represents repayment of principal.
D) All of the above are true.
Ans: D

Page 11


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
45. Which one of the following statements is NOT true about amortization?
A) Amortization refers to the way the borrowed amount (principal) is paid down over the life
of the loan.
B) With an amortized loan, each loan payment contains some payment of principal and an
interest payment.
C) With an amortized loan, a smaller proportion of each month's payment goes toward
interest in the early periods.
D) A loan amortization schedule is just a table that shows the loan balance at the beginning
and end of each period, the payment made during that period, and how much of that
payment represents interest and how much represents repayment of principal.
Ans: C
Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
46. Which one of the following statements is true about amortization?
A) With an amortized loan, a bigger proportion of each month's payment goes toward
interest in the early periods.
B) With an amortized loan, a bigger proportion of each month's payment goes toward
interest in the later periods.
C) With an amortized loan, a smaller proportion of each month's payment goes toward
interest in the early periods.
D) None of the above.
Ans: A
Format: Multiple Choice
Learning Objective: LO 2
Level of Difficulty: Easy
47. The annuity transformation method is used to transform
A) a present value annuity to a future value annuity.
B) a present value annuity to an annuity due.
C) an ordinary annuity to an annuity due.
D) a perpetuity to an annuity.
Ans: C

Page 12


Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
48. A firm receives a cash flow from an investment that will increase by 10 percent
annually for an infinite number of years. This cash flow stream is called
A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.
Ans: B
Format: Multiple Choice
Learning Objective: LO 3
Level of Difficulty: Easy
49. Your investment in a small business venture will produce cash flows that increase by 15
percent every year for the next 25 years. This cash flow stream is called
A) an annuity due.
B) a growing perpetuity.
C) an ordinary annuity.
D) a growing annuity.
Ans: D
Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
50. Which one of the following statements is TRUE about the effective annual rate (EAR)?
A) The effective annual interest rate (EAR) is defined as the annual growth rate that takes
compounding into account.
B) The EAR conversion formula accounts for the number of compounding periods and, thus,
effectively adjusts the annualized interest rate for the time value of money.
C) The EAR is the true cost of borrowing and lending.
D) All of the above are true.
Ans: D
Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
51. The true cost of borrowing is the
A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) periodic rate.
Ans: B

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Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
52. The true cost of lending is the
A) annual percentage rate.
B) effective annual rate.
C) quoted interest rate.
D) none of the above.
Ans: B
Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
53. Which one of the following statements is NOT true?
A) The APR is the appropriate rate to do present and future value calculations.
B) The EAR is the appropriate rate to do present and future value calculations.
C) The EAR is the true cost of borrowing and lending.
D) The EAR takes compounding into account.
Ans: A
Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
54. Which one of the following statements is NOT true?
A) The Truth-in-Lending Act was passed by Congress to ensure that the true cost of credit
was disclosed to consumers.
B) The Truth-in-Savings Act was passed to provide consumers an accurate estimate of the
return they would earn on an investment.
C) The above two pieces of legislation require by law that the APR be disclosed on all
consumer loans and savings plans.
D) All of the above are true statements.
Ans: D

Page 14


Format: Multiple Choice
Learning Objective: LO 5
Level of Difficulty: Medium
55. Which one of the following statements is NOT true?
A) The correct way to annualize an interest rate is to compute the effective annual interest
rate (EAR).
B) The APR is the annualized interest rate using simple interest.
C) The correct way to annualize an interest rate is to compute the annual percentage
rate (APR).
D) You can find the interest rate per period by dividing the quoted annual rate by the number
of compounding periods.
Ans: C

Page 15


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
56. FV of multiple cash flows: Chandler Corp. is expecting a new project to start
producing cash flows, beginning at the end of this year. They expect cash flows to be as
follows:
1
$643,547

2
$678,214

3
$775,908

4
$778,326

5
$735,444

If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future
value of this cash flow stream at the end of five years? (Round to the nearest dollar.)
A) $3,889,256
B) $4,227,118
C) $5,214,690
D) $4, 809,112
Ans: B
Feedback:

FV5 = $643,547(1.082) 4 + $678, 214(1.082)3 + $775,908(1.082)2 + $778,326(1.082)1
+$735, 444
= $882, 042.10 + $859,109.52 + $908,374.12 + $842,148.73 + $735, 444
= $4, 227,118.47

Page 16


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
57. FV of multiple cash flows: Stiglitz, Inc., is expecting the following cash flows
starting at the end of the year—$113,245, $132,709, $141,554, and $180,760. If their
opportunity cost is 9.6 percent, find the future value of these cash flows. (Round to the
nearest dollar.)
A) $644,406.10
B) $732,114
C) $685,312
D) $900,810
Ans: A
Feedback:

Page 17


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
58. FV of multiple cash flows: Tariq Aziz will receive from his investment cash flows of
$3,125, $3,450, and $3, 800. If he can earn 7.5 percent on any investment that he
makes, what is the future value of his investment cash flows at the end of three years?
(Round to the nearest dollar.)
A) $11,120
B) $10,944
C) $10,812
D) $12,770
Ans: A
Feedback:

FV3= $3,125(1.075) 2 + $3, 450(1.075)1 + $3,800
= $3, 611.33 + $3, 708.75 + $3,800
= $11,120.08

Page 18


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
59. FV of multiple cash flows: Shane Matthews has invested in an investment that will
pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity
cost is 10 percent, what is the future value of the cash flows he will receive? (Round to
the nearest dollar.)
A) $27,150
B) $29,900
C) $30,455
D) $31,504
Ans: D
Feedback:

FV4 = $6, 200(1.10)3 + $6, 450(1.10) 2 + $7, 225(1.10)1 + $7,500
= $8, 252.20 + $7,804.50 + $7,947.50 + $7,500
= $31, 504.20

Page 19


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
60. FV of multiple cash flows: International Shippers, Inc., have forecast earnings of $1,
233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value
of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest
dollar.)
A) $4,214,360
B) $4,551,446
C) $3,900,865
D) $4,875,212
Ans: B
Feedback:

FV3 = $1, 233, 400(1.13) 2 + $1,345, 900(1.13)1 + $1, 455, 650
= $1,574,928.46 + $1,520,867 + $1, 455, 650
= $4, 551, 445.46

Page 20


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
61. PV of multiple cash flows: Jack Stuart has loaned money to his brother at an interest
rate of 5.75 percent. He expects to receive $625, $650, $700, and $800 at the end of the
next four years as complete repayment of the loan with interest. How much did he loan
out to his brother? (Round to the nearest dollar.)
A) $2,713
B) $2,250
C) $2,404
D) $2,545
Ans: C
Feedback:
0

1

2

3

4

$625

$650

$700

$800

n = 4;

i=5.75%

$625
$650
$700
$800
+
+
+
2
3
(1.0575) (1.0575) (1.0575) (1.0575)4
= $591.02 + $581.24 + $591.91 + $639.69

PV =

= $2, 403.85

Page 21


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
62. PV of multiple cash flows: Ferris, Inc., has borrowed from their bank at a rate of 8
percent and will repay the loan with interest over the next five years. Their scheduled
payments, starting at the end of the year are as follows—$450,000, $560,000,
$750,000, $875,000, and $1,000,000. What is the present value of these payments?
(Round to the nearest dollar.)
A) $2,735,200
B) $2,615,432
C) $2431,224
D) $2,815,885
Ans: D
Feedback:

$450, 000 $560, 000 $750, 000 $875, 000 $1, 000, 000
+
+
+
+
(1.08)
(1.08) 2
(1.08)3
(1.08) 4
(1.08)5
= $416, 666.67 + $480,109.74 + $595,374.18 + $643,151.12 + $680,583.20
= $2, 815, 884.91

PV =

Page 22


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
63. PV of multiple cash flows: Hassan Ali has made an investment that will pay him
$11,455, $16,376, and $19,812 at the end of the next three years. His investment was to
fetch him a return of 14 percent. What is the present value of these cash flows? (Round
to the nearest dollar.)
A) $33,124
B) $36,022
C) $41,675
D) $39,208
Ans: B
Feedback:

$11, 455 $16,376 $19,812
+
+
(1.14)
(1.14) 2
(1.14)3
= $10, 048.25 + $12, 600.80 + $13,372.54

PV =

= $36, 021.58

Page 23


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
64. PV of multiple cash flows: Ajax Corp. is expecting the following cash flows—
$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the
company’s opportunity cost is 15 percent, what is the present value of these cash flows?
(Round to the nearest dollar.)
A) $429,560
B) $414,322
C) $480,906
D) $477,235
Ans: A
Feedback:

$79, 000 $112, 000 $164, 000 $84, 000 $242, 000
+
+
+
+
(1.15)
(1.15) 2
(1.15)3
(1.15) 4
(1.15)5
= $68, 695.65 + $84, 688.09 + $107,832.66 + $48, 027.27 + $120,316.77
= $429, 560.45

PV =

Page 24


Format: Multiple Choice
Learning Objective: LO 1
Level of Difficulty: Medium
65. PV of multiple cash flows: Pam Gregg is expecting cash flows of $50,000, $75,000,
$125,000, and $250,000 from an inheritance over the next four years. If she can earn 11
percent on any investment that she makes, what is the present value of her inheritance?
(Round to the nearest dollar.)
A) $361,998
B) $309,432
C) $412,372
D) $434,599
Ans: A
Feedback:

$50, 000 $75, 000 $125, 000 $250, 000
+
+
+
(1.11)
(1.11) 2
(1.11)3
(1.11) 4
= $45, 045.05 + 60,871.68 + $91,398.92 + $164, 682.74

PV =

= $361, 998.39

Page 25


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