1. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?a. The cash flows are in the form of a deferred annuity and they total to $100000. You learn that the annuity lasts for only 5 rather than 10 years hence that each payment is for $20000 rather than for $10000.b. The discount rate increases.c. The riskiness of the investment s cash flows decreases.d. The total amount of cash flows remains the same but more of the cash flows are received in the earlier years and less are received in the later years.e. The discount rate decreases.2. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increases the calculated value of the investment?a. The cash flows are in the form of a deferred annuity and they total to $100000. You learn that the annuity lasts for only10 rather than 5 years hence that each payment is for $10000 rather than for $20000.b. The discount rate decreases.c. The riskiness of the investment s cash flows increases.d. The total amount of cash flows remains the same but more of the cash flows are received in the later years and less are received in the earlier years.e. The discount rate increases.3. Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.b. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.c. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.d. The periodic rate of interest is 3% and the effective rate of interest is 6%.e. The periodic rate of interest is 6% and the effective rate of interest is also 6%.4. Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?a. The periodic rate of interest is 2% and the effective rate of interest is 4%.b. The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.c. The periodic rate of interest is 4% and the effective rate of interest is less than 8%.d. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.e. The periodic rate of interest is 8% and the effective rate of interest is also 8%.
