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 opportunity?

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 not by personal opinion?

Accepted Answer

The Valuation Principle

Question 3

You win 4 tickets to a concert (market price $$30 each) or can exchange them for 2 tickets to another show (market price 50 $$each). What should you do to maximize value?

Accepted Answer

Take the 4 tickets, sell them, and buy 2 tickets to the other show

Question 4

A firm can acquire 200 barrels of oil ($$90/barrel) and 3,000 lbs of copper (3.50/lb) $$for $25,000. What is the net value of this opportunity?

Accepted Answer

$3,500

Question 5

What is an arbitrage opportunity?

Accepted Answer

A situation where a profit can be made without risk or investment

Question 6

If you invest $1,000 at 10% interest for 2 years, what is the future value using compound interest?

Accepted Answer

$1,210

Question 7

Given the formula for present value: $$PV = \frac{C}{(1 + r)^n}$$, what is the present value of $15,000 to be received in 10 years at a 6% interest rate?

Accepted Answer

$$PV = \frac{15,000}{(1 + 0.06$$)^{10}$$}$$

Question 8

A project costs $$100,000 today and returns 105$$,000 in one year. If the bank interest rate is 10%, what is the opportunity cost of the investment in one year?

Accepted Answer

$110,000

Question 9

If the present value of $1,000 received in 3 years at a 10% interest rate is calculated, which formula is correct?

Accepted Answer

$$PV = \frac{1,000}{(1 + 0.10)^3$}$$

Question 10

Sony expects $$2 billion in revenue if PlayStation 3 launches now, or 1.6 $$billion if delayed by one year. If the interest rate is 8%, what is the present value of the delayed revenue?

Accepted Answer

$$PV = \frac{1,600,000,000}{1.08}$$

Question 11

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

Question 12

XYZ Company expects to receive $2,000,000 in 5 years. If the market interest rate is 4%, how much can they borrow today to repay the loan with this cash flow?

Accepted Answer

$$PV = \frac{2,000,000}{(1 + 0.04)^5$}$$

Question 13

Which rule states that you can only compare or combine values at the same point in time?

Accepted Answer

Rule 1: Comparing and combining values

Question 14

If you invest $826.45 today at 10% interest for 2 years, what will be the future value?

Accepted Answer

$1,000

Question 15

What is the effect of compound interest compared to simple interest over a long period?

Accepted Answer

Compound interest grows faster due to earning interest on prior interest

Question 16

Which formula correctly expresses the future value of a cash flow?

Accepted Answer

$$FV_n = C 	imes (1 + r)^n$$

Question 17

If the present value of $$1,000 in 3 years at 10% is 751.31$$, what is the discount factor used?

Accepted Answer

$$\frac{1}{(1 + 0.10)^3$}$$

Question 18

Which of the following is NOT a step in cost-benefit analysis for financial decisions?

Accepted Answer

Using personal preferences to determine value

Valuation Principle and Time Value of Money in Financial Accounting

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