Question 1

A jewelry manufacturer can trade 200 ounces of silver (market price $$20/oz) for 10 ounces of gold (market price 1$$,000/oz) today. What is the net value of this trade?

Accepted Answer

$6,000

Question 2

Which principle states that the value of a commodity or asset is determined by its competitive market price, and that benefits and costs should be evaluated using those prices?

Accepted Answer

The Valuation Principle

Question 3

Suppose you can buy 200 barrels of oil (market price $$90/barrel) and 3,000 pounds of copper (market price 3.50/$$pound) for $25,000. What is the value of this opportunity?

Accepted Answer

$3,500

Question 4

If you have $$1,000 today and deposit it in a bank at 10% interest, what will be the value after two years, using the formula FV = PV$$ 	imes (1 + r)^n$?

Accepted Answer

$1,210

Question 5

A firm invests $$100,000 today and expects to receive 105$$,000 in one year. If the interest rate is 10%, what is the net value of the investment in one year?

Accepted Answer

$-5,000

Question 6

What is the present value of $$15,000 to be received in 10 years if the interest rate is 6% per year? Use the formula PV$$ = \frac{C}{(1 + r)^n}$.

Accepted Answer

$8,385.42

Question 7

XYZ Company expects to receive $$2,000,000 in five years. If the interest rate is 4% per year, how much can they borrow today to repay the loan in full with that cash flow? Use PV$$ = \frac{C}{(1 + r)^n}$.

Accepted Answer

$1,643,854.21

Question 8

If the interest rate is 8%, what is the present value of $$1.6$$ billion received in one year? Use $$PV = \frac{C}{1 + r}.$$

Accepted Answer

$$1.481$$ billion

Question 9

Which of the following best describes an arbitrage opportunity?

Accepted Answer

A situation where it is possible to make a profit without taking any risk or making any investment

Question 10

According to the Law of One Price, what must be true in a competitive market?

Accepted Answer

Securities that produce exactly the same cash flows must have the same price

Question 11

If you invest $$826.45$$ today at 10% interest for two years, what will be the value at the end of two years? Use $$FV = PV 	imes (1 + r)^n.$$

Accepted Answer

$$1,000$$

Question 12

Which of the following is NOT a correct application of the three rules of valuing cash flows?

Accepted Answer

Combining cash flows at different points in time without adjusting for interest rates

Question 13

A project costs $$100,000 today and returns 105$$,000 in one year. If the interest rate is 10%, what is the present value of the benefit? Use $$PV = \frac{C}{1 + r}.$$

Accepted Answer

$$95,454.55$$

Question 14

If you delay a project by one year and the interest rate is 8%, what is the cost of delaying $$2$$ billion in revenue to $$1.6$$ billion in one year? Use $$PV = \frac{C}{1 + r}.$$

Accepted Answer

$$519$$ million

Question 15

Which of the following best describes the time value of money?

Accepted Answer

A dollar today is worth more than a dollar in the future due to its earning potential

Question 16

What is the future value of $$10,000$$ invested today for two years at 10% interest, using $$FV = PV 	imes (1 + r)^n$$?

Accepted Answer

$$12,100$$

Question 17

If you have a choice between receiving $$10,000$$ today or $$10,000 in $$two years, and the interest rate is 10%, which is the better option and why?

Accepted Answer

Receiving $$10,000$$ today, because it can be invested to earn more in two years

Question 18

Which formula correctly calculates the present value of a future cash flow?

Accepted Answer

$$PV = \frac{C}{(1 + r)^n}$$

Question 19

If the market price of a good is $$50 in one market and 55 in $$another, what financial concept allows you to profit from this difference?

Accepted Answer

Arbitrage

Question 20

Which of the following is an example of compounding?

Accepted Answer

Earning interest on both the initial deposit and the accumulated interest

The Valuation Principle and the Time Value of Money

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