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

According to the valuation principle, what determines the value of a commodity or asset to a firm or its investors?

Accepted Answer

Its competitive market price

Question 3

You have the option to receive 4 tickets to a concert (market price $$30 each) or 2 tickets to another concert (market price 50 $$each). What should you do to maximize value?

Accepted Answer

Take the 4 tickets, sell them, and use the proceeds to buy the 2 tickets you want

Question 4

A firm can acquire 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 5

What is an arbitrage opportunity?

Accepted Answer

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

Question 6

If the interest rate is 10%, what is the future value in one year of $100,000 invested today?

Accepted Answer

$110,000

Question 7

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

Accepted Answer

$-5,000

Question 8

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

Accepted Answer

$$PV = \frac{15,000}{(1.06$$)^{10}$$}$$

Question 9

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

Accepted Answer

$$PV = \frac{2,000,000}{(1.04)^5$}$$

Question 10

If you invest $826.45 today at 10% interest, what will be the value in two years?

Accepted Answer

$$1,000$$

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

If the interest rate is 8%, what is the present value of $$1.6$$ billion received in one year?

Accepted Answer

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

Question 13

Which rule must be followed when comparing or combining cash flows?

Accepted Answer

Only compare or combine values at the same point in time

Question 14

What is the effect of compound interest over time compared to simple interest?

Accepted Answer

Compound interest grows faster due to earning interest on interest

Question 15

If $$1,000 is $$invested at 10% interest for three years, what is the present value of $$1,000$$ received in three years?

Accepted Answer

$$PV = \frac{1,000}{(1.10)^3$}$$

Question 16

A project requires an investment of $$10,000 today and will return 6$$,000 at the end of each of the next two years. If the interest rate is 10%, what is the present value of the future cash flows?

Accepted Answer

$$PV = \frac{6,000}{1.10} + \frac{6,000}{(1.10)^2$}$$

Question 17

Which of the following is NOT a requirement for an arbitrage opportunity?

Accepted Answer

Requires a significant investment

Question 18

If the present value of a cash flow is $$826.45$$ and the interest rate is 10%, what is the value in one year?

Accepted Answer

$$909.09$$

Question 19

Which formula correctly expresses the future value of a cash flow compounded annually for $$n$$ years at rate $$r$$?

Accepted Answer

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

Valuation Principle and Time Value of Money in Financial Accounting

Guida di studio - Domande di pratica

Study guide - Flashcard