Chapter Four
Allocating Resources Over Time
This chapter contains 46 multiple-choice questions, 18 short problems and 9 longer problems. Multiple Choice
1.________ is the process of going from present value to future value, whereas ________ is
finding the present value of some future amount.
(a)Discounting; compounding
(b)Compounding; annualizing
(c)Compounding; discounting
(d)Discounting; leasing
Answer: (c)
2.________ refers to the interest rate at which money received before the end of the planning
horizon can be reinvested.
(a)Internal rate
(b)Reinvestment rate
(c)Cost of equity
(d)Compound interest
Answer: (b)
3.The difference between an immediate annuity and an ordinary annuity is ________.
(a)the number of periods
(b)the amount of the payments
(c)the interest rate
(d)the timing of the payments
Answer: (d)
4.The preferred stock of Tavistock Realty offers a cash dividend of $2.28 per year and it is
selling at a price of $110 per share. What is the yield of Tavistock Realty preferred stock?
(a)2.07%
(b)2.12%
(c)2.28%
(d)48.25%
Answer: (a)
5.Consider the situation where you have won a $10 million lottery to be received in 25 annual
equal payments of $400,000. What will happen to the present value of these winnings if the interest rate increases during the next 25 years?
(a)it will not change
(b)it will be worth more
(c)it will be worth less
(d)it cannot be determined
Answer: (c)
6.What is the effective annual rate on a bank account that has APR of 8 percent with interest
compounded quarterly?
(a)6.12%
(b)8.24%
(c)8.48%
(d)17.17%
Answer: (b)
7.You take out a loan with an APR of 10% with monthly compounding. What is the effective
annual rate on your loan?
(a)23.87%
(b)21.6%
(c)19.56%
(d)18%
Answer: (a)
8.The CFO of CyberHelp Inc. has $250,000 in cash today that he wants to invest. How much
will this investment be worth in four years if the current interest rate is 8%?
(a)$270,000
(b)$330,000
(c)$340,125
(d)$342,150
Answer: (c)
9.If you purchase a $12,000 certificate of deposit today with an APR of 14%, with quarterly
compounding, what will the CD be worth when it matures in 5 years?
(a)$20,846.99
(b)$20,865.60
(c)$23,104.97
(d)$23,877.47
Answer: (d)
10.The CFO of CyberChain Inc. plans to unleash a media campaign that is expected to cost $15
million four years from today. How much cash should she set aside to pay for this if the current interest rate is 13%?
(a)$9.2 million
(b)$13.3 million
(c)$14.4 million
(d)$16.9 million
Answer: (a)
11.The NPV is a measure of how much your ________ wealth changes as a result of your choice
and if the NPV is ________it does not pay to undertake that choice.
(a)future; negative
(b)current; negative
(c)current; positive
(d)future; positive
Answer: (b)
12.The ________ is the rate that one can earn somewhere else if one did not invest in the project
under evaluation.
(a)opportunity cost of capital
(b)cost of debt
(c)cost of equity
(d)weighted average cost of capital
Answer: (a)
13.You are trying to decide whether or not to buy a bond for $990 that will make one payment
for $1,050 four years from today. What is the internal rate of return on the bond’s cash flows?
(a)1.06%
(b)1.48%
(c)10.6%
(d)14.8%
Answer: (b)
14.Calculate the NPV of the following cash flows: you invest $3,000 today and receive $300 one
year from now, $700 two years from now, and $1,100 starting four years from now. Assume that the interest rate is 7%.
(a)–$1,962.62
(b)–$1,269.04
(c)$1,269.04
(d)$1,962.62
Answer: (b)
15.After each payment of an amortized loan, the outstanding balance is reduced by the amount
of principal repaid. Therefore, the portion of the payment that goes toward the payment of interest is ________ than the previous period’s interest payment and the portion going toward repayment of principal is ________ than the previous period’s.
(a)greater; lower
(b)lower; lower
(c)greater; greater
(d)lower; greater
Answer: (d)
16.The present value of a future amount can be calculated with the equation ________.
(a) PV = FV(1 + i)n
(b) PV = FV(1 + i)(n)
(c) PV = FV/(1 + i)n[NOTE: this should be formatted as a stacked fraction]
(d) PV = FV/(1 + i)(n) [NOTE: this should be formatted as a stacked fraction]
Answer: (c)
17.To compute the future value of a present amount use the compound amount factor defined as
________.
(a) FV = PV(1 + i)n
(b) FV = PV(1 + i)(n)
(c) FV = PV/(1 + i)n [NOTE: this should be formatted as a stacked fraction]
(d) FV = PV/(1 + i)(n) [NOTE: this should be formatted as a stacked fraction]
Answer: (a)
18.The earnings of BGB Computers have grown from $3.20 to $6.90 in 6 years. Determine the
annual compound rate.
(a)1.14%
(b)13.7%
(c)15.6%
(d)115.6%
Answer: (b)
19.In five years you intend to go to graduate school. For each of your four years in graduate
school, you need to have a fund that will provide $25,000 per year at the beginning of each year. If the interest rate is 9% throughout, how much must you put in the fund today?
(a)$64,996
(b)$57,379
(c)$50,184
(d)$16,249
Answer: (b)
20.As part of your new job at CyberInc. the company is providing you with a new Jeep. Your
firm will lease this $34,000 Jeep for you. The terms of the lease are seven annual payments at an interest rate of 10%, which will fully amortize the cost of the car. What is the annual lease payment?
(a)$6,984.39
(b)$5,342.86
(c)$4,857.14
(d)$3,584.00
Answer: (a)
21.A rule of thumb with using the internal rate of return is to invest in a project if the IRR is
________ the opportunity cost of capital.
(a)greater than
(b)less than
(c)less than or equal to
(d)one-half of
Answer: (a)
22.When considering the timeframe of an investment, a rule followed by some is to choose the
investment with ______ payback period.
(a)the longest
(b)the shortest
(c)no
(d)an infinite
Answer: (b)
23.A major problem with using the internal rate of return rule is ________.
(a)there may be multiple cash outflows and multiple cash inflows
(b)the internal rate of return may not exist
(c)the internal rate of return may not be unique
(d)all of the above
Answer: (d)
24.The NPV is the difference between the ________ value of all ________ cash inflows
minus the ________ value of all current and future cash outflows.
(a)future; present; present
(b)present; future; present
(c)present; present; future
(d)present; future; future
Answer: (b)
25.When considering effective interest rates, as the compounding frequency increases, the
effective annual rate gets ________ and ________ but approaches ________.
(a)larger; larger; a limit
(b)smaller; smaller; a limit
(c)larger; larger; infinity
(d)smaller; smaller; infinity
Answer: (a)
26.In 10 years you wish to own your business. How much will you have in your bank
account at the end of 10 years if you deposit $300 each quarter (assume end of the period deposits)? Assume the account is paying an interest rate of 12% compounded quarterly.
(a)$20,220
(b)$21,060
(c)$21,626
(d)$22,620
Answer: (d)
27.The director of marketing for CyberProducts Inc. plans to unleash a media blitz that is
expected to cost $4.7 million three years from today. How much cash should she set aside today to pay for this if the current interest rate is 11%?
(a) $6.43 million
(b) $4.23 million
(c) $3.62 million
(d) $3.44 million
Answer: (d)
28.If you purchased a $10,000 certificate of deposit today with an APR of 12%, with monthly
compounding, what would be the CD worth when it matures in 6 years?
(a) $56,340
(b) $20,468
(c) $19,738
(d) $5,066
Answer: (b)
29.The manufacturing manager of CyberProducts Inc. estimates that she can save the company
$16,000 cash per year over the next 8 years by implementing a recycling plan. What is the value of the savings today if the appropriate interest rate for the firm is 9%? Assume cash flows occur at the end of the year.
(a) $64,240
(b) $88,557
(c) $96,527
(d) $128,000
Answer: (b)
30.If the exchange rate between the U.S. dollar and the French Franc is $0.17 per French Franc,
the dollar interest rate is 5.5% per year, and the French Franc interest rate is 4.5% per year, what is the "break-even" value of the future dollar/French Franc exchange rate one year from now?
a)$0.172 per FF
b)$0.179 per FF
c)$5.827 per FF
d)$5.882 per FF
Answer: (a)
31.In any time value of money calculation, the cash flows and the interest rate must be
denominated ________.
a)in the same currency
b)in different currencies
c)in terms of a third currency
d)in terms of the ECU
Answer: (a)
32.If the exchange rate between the U.S. dollar and the Japanese yen is $0.00745 per yen, the
dollar interest rate is 6% per year, and the Japanese interest rate is 7% per year, what is the “break-even” value of the future dollar/yen exchange rate one year from now?
a)$135.49 per yen
b)$134.23 per yen
c)$0.00752 per yen
d)$0.00738 per yen
Answer: (d)
33.Consider the situation where you are trying to decide if you should invest in a Swiss project
or an American project. Both projects require an initial outlay of $15,000. The Swiss project will pay you 17,100 Swiss Francs per year for 6 years, whereas the American one will pay you $11,000 per year for 6 years. The dollar interest rate is 5% per year, the Swiss Franc interest rate is 6% per year, and the current dollar price of a Swiss Franc is $0.68 per Swiss Franc. Which project has the higher NPV?
a)the U.S. project; its NPV is $55,832
b)the U.S. project; its NPV is $40,833
c)the Swiss project; its NPV is $42,179
d)the Swiss project; its NPV is $57,178
Answer: (c)
34.The ________ is the rate denominated in dollars or in some other currency, and the ________
is denominated in units of consumer goods.
a)nominal interest rate; inflation interest rate
b)nominal interest rate; real interest rate
c)real interest rate; inflation interest rate
d)real interest rate; nominal interest rate
Answer: (b)
35.Consider the situation where you are trying to decide if you should invest in a British project
or U.S. project. Both projects require an initial outlay of $55,000. The British project will pay you 30,000 pounds per year for 6 years, whereas the American one will generate $40,000 per year for 6 years. The British interest rate is 5% per year, and the American interest rate is 6% per year; the current dollar price of a pound sterling is $1.6320 per pound sterling. Which project has the higher NPV?
a)choose the U.S. one, it has a NPV of $196,693
b)choose the U.S. one, it has a NPV of $141,693
c)choose the British one, it has a NPV of $248,506
d)choose the British one, it has a NPV of $193,506
Answer: (d)
36.What is the real interest rate if the nominal interest rate is 9% per year and the rate of
inflation is 6% per year?
a) 1.5%
b) 2.75%
c) 2.83%
d)7.5%
Answer: (c)
37.What is the nominal interest rate if the real rate of interest is 4.5% and the rate of inflation is
6% per year?
a)10.5%
b)10.77%
c)10.86%
d)14.5%
Answer: (b)
38.What is the real rate of interest if the inflation rate is 6% per year and the nominal interest
rate per year is 12.5%?
a) 1.32%
b) 6.13%
c) 5.78%
d)11.79%
Answer: (b)
https://www.doczj.com/doc/353335631.html,pute the real future value, to the nearest dollar, of $2,000 in 35 years time. The real
interest rate is 3.2%, the nominal interest rate is 8.36%, and the rate of inflation is 5%.
a)$6,023
b)$6,853
c)$33,223
d)$11,032
Answer: (a)
40.The real interest rate is 3.2%, the nominal interest rate is 8.36% and the rate of inflation is 5%.
We are interested in determining the future value of $200 in 35 years time. What is the future price level?
a) 2.91
b) 3.012
c) 5.516
d)16.61
Answer: (c)
41.Suppose your child is 9 years old and you are planning to open a fund to provide for the
child’s college education. Currently, tuition for one year of college is $22,000. How much must you invest now in order to pay enough for the first year of college nine years from now, if you think you can earn a rate of interest that is 4% more than the inflation rate?
a)$21,154
b)$16,988
c)$15,585
d)$15,457
Answer: (d)
42.Suppose you have a child who is 10 years old and you are planning to open a fund to provide
for the child’s college education. Currently, tuition for one year is $22,000. Your child is planning to travel for two years before starting college. How much must you invest now in order to pay enough for the first year of college ten years from now, if you think you can earn
a rate of interest that is 5% more than the inflation rate?
a)$10,190
b)$13,506
c)$13,660
d)$20,952
Answer: (b)
43.When considering a plan for long run savings, if one does not have an explicit forecast of
inflation, then one can make plans in terms of:
a)constant real payments and a real rate of interest
b)constant nominal payments and a nominal rate of interest
c)constant real payments and a nominal rate of interest
d)constant nominal payments and a real rate of interest
Answer: (a)
44.If the real rate is 4% and the rate of inflation is 6%, what is the nominal rate?
a)8.16%
b)10.16%
c)10.24%
d)10.36%
Answer: (c)
45.You have an investment opportunity with a nominal rate of 6% compounded daily. If you
want to have $100,000 in your investment account in 15 years, how much should you deposit today, to the nearest dollar?
a.$43,233
b.$41,727
c.$40,930
d.$40,660
Answer: (d)
46.You have determined the present value of an expected cash inflow stream. Which of the
following would cause the stream to have a higher present value?
a)The discount rate increases.
b)The cash flows are paid over a shorter period of time.
c)The discount rate decreases.
d)Statements (b) and (c) are both correct.
Answer: (d)
Short Problems
1.CyberNow is opening an office in the U.S. CyberNow expects cash flows to be $500,000 for
the first year, $530,000 for the second year, $560,000 in the third year. If CyberNow uses 12 percent as its discount rate, what is the present value of the cash flows? Assume cash flows are made at the end of the year.
Answer: PV = FV/(1 + i)n
= 500,000/(1.12)1 + 530,000/(1.12)2 + 560,000/(1.12)3
= 446,429 + 422,513 + 398,597
= $1,267,539
2. GeorgiaSun Inc. has preferred stock that pays an annual dividend of $10.50. If the security
has no maturity (an “infinite” life), what is its value to an investor who wishes to obtain an
8.5 percent rate of return?
Answer: PV of a level Perpetuity = $10.50/0.085
= $123.53
3.Let us suppose you have a choice between investing in a bank savings account that pays 9%
compounded annually (Bank Yearly) and one that pays 8.5% compounded daily (Bank Daily).
(Assume this is based on 365 days). Using only effective annual rates, which bank would you prefer?
Answer: Effective annual rate: Bank Yearly = 9%
Effective annual rate: Bank Daily = [1 + 0.085/365]365 – 1
= 8.87%
You would prefer Bank Yearly because you will earn more money.
4.Steptoe’s bank account has a floating interest rate on certain deposits. That is, every year the
interest rate is adjusted. Four years ago Steptoe deposited $35,000 into the bank account, when interest rates were 6%. The following year the rate was 6.5%, last year the rate was 8% and this year the rate fell to 7.5%. How much will be in his account at the end of the year?
Assume annual compounding.
Answer: Amount = $35,000 x 1.06 x 1.065 x 1.08 x 1.075
= $45,872.85
5.Calculate the net present value of the following cash flows: you invest $4,000 today and
receive $400 one year from now, $900 two years from now and $2000 three years from now.
Assume the interest rate is 9%.
Answer: NPV = $400/(1.09) +$900/(1.09)2 + $2,000(1.09)3 –$4,000
= $366.97 + $757.51 + $1,544.37 – $4,000
= $ -1,331.15
6.The manufacturing manager of CyberNow Inc. estimates that she can save the company
$20,000 cash per year over the next 5 years by implementing a recycling plan. What is the value of the savings today if the appropriate interest rate for the firm is 8%. Assume that cash flows occur at the end of the year.
Answer:
n i PV FV PMT Result
5 8 ? 0 $20,000 PV = $79,854.20
7.Stroll Inc. has been offered a $2,000,000 jet under a 10 year loan agreement. The loan
requires Stroll Inc. to make equal, annual, end-of-year payments that include both principal and interest on the outstanding balance. The interest rate on the loan is 11%. Calculate the amount of these annual payments.
Answer:
n i PV FV PMT Result
10 11 –$2,000,000 0 ? PMT = $339,602.85 8.Herb Flint decides to put $2,000 a year into an IRA fund over his 35 year working life and
then retire. Assume the deposits are made at the end of the year. If the account earns 11% compounded annually, what will Herb have in the account when he retires?
Answer:
n i PV FV PMT Result
35 11 0 ? $2,000 FV = $683,179.11
9.Regarding retirement funds, there is some debate as to whether investors should invest at the
beginning of the year rather than at the end of the year. If an investor invests $2,000 per year at 12% over a 35 year period, what is the difference between the two funds?
Answer: End of Year Fund:
n i PV FV PMT Result
35 12 0 ? $2,000 PV = $863,326.99
Under an immediate annuity the entire amount earns interest for an additional year. So the FV for the immediate annuity is $863,326.99 X 1.12 = $996,926.23.
Therefore the difference between the funds is: $996,926.23 – $863,326.99 = $103,599.24 10.You have the chance to buy a bond for $900 that will make one payment of $1,100 six years
from today. What is the internal rate of return in the bond’s cash flows?
Answer: 900(1 + i)6 = 1,100
(1 + i)6 = 1.222
i = (1.222)1/6 - 1
i= 3.40%
11.Consider the situation where you are trying to decide if you should invest in an Australian
project or an American project. Both projects require an initial outlay of $20,000. The
Australian project will pay you Aust $40,000 per year for 6 years, whereas the American one will generate $25,000 per year for 6 years. The Australian dollar interest rate is 6% per year and the American interest rate is 5% per year; the current dollar price of an Australian dollar is $0.65 per Australian dollar. Which project has the higher NPV?
Answer:
American Project:
n i PV FV PMT PV Result
6 5 ? 0 $25,000 $126,892
Australian Project:
n i PV FV PMT PV Result
6 6 ? 0 $40,000 $196,693 (Aust)
NPV US project = $126,892 - $20,000 = $106,892
Today the Australian project is worth A$196,693 x $0.65 per Aust
= $127,850.45 (in U.S. dollars)
NPV Aust project = $127,850.45 - $20,000 = $107,850.45
Choose the Australian project since it has a higher NPV.
12.If the exchange rate between the U.S. dollar and the Dutch Guilder is $0.49903 per Guilder,
the dollar interest rate is 7% per year and the Dutch interest rate is 8% per year, what is the “break-even” value of the future dollar/Guilder exchange rate one year from now?
Answer:
Today One Year From Now
$1 @7% $1.07
2.00389 Guilders @8% 2.16420 Guilders
“Break-even” point = $1.07/2.16420 Guilders
= $0.49441 per Guilder
13.What is the real rate of interest if the nominal rate is 11.5% per year and the rate of inflation
is 7% per year?
Answer:
Real interest rate = Nominal interest rate – rate of inflation
1 + rate of inflation
= 0.115 – 0.07
1.07
= 0.04206
Real interest rate = 4.21%
14.I have $200 today and am interested in finding out what its equivalent real future value will
be in 40 years. What are the two ways I have available to me in computing the real future value?
Answer:
https://www.doczj.com/doc/353335631.html,pute the future value using the real rate of interest.
https://www.doczj.com/doc/353335631.html,pute the nominal future value using the nominal rate, and then deflate it to
find the real future value.
15.The real rate of interest is 3.756%, the nominal rate of interest is 10.5% and the rate of
inflation is 6.5%. What is the real future value of $2,000 in 40 years time? Show both
methods.
Answer:
Method One:
Real future value = $,2000 x 1.0375640
= $8,741
Method Two:
Nominal future value = $2,000 x 1.10540
= $108,522.83
Future price level = 1.06540
= 12.16
Real FV = nominal future value
future price level
= $108,522.83
12.416
= $8,741
16.As part of your new job at CyberInc. the company is providing you with a new Jeep. Your
firm will lease this $34,000 Jeep for you. The terms of the lease are seven annual payments at an interest rate of 10%, which will fully amortize the cost of the car. Assuming that all
payments are made on time and no additional money is paid towards the lease in any year, what percent of the 5th payment will go towards repayment of principal?
Answer:
n i PV FV PMT Result
7 10 –$34,000 0 ? PMT = $6,984.39
The monthly payment = $6,984.39
Of the monthly payment, principal = $5,247
% principal repayment in 5th payment =$5,247/$6,984.39
= 75.12%
17.You have decided to buy a car that costs $35,000. The dealer offers you a 5 year loan with
monthly payments of $814 per month. What is the annual interest rate on the loan?
Answer:
n i PV FV PMT Result
60 ? –$35,000 0 $814 i = 1.165
The annual nominal interest rate = 1.165 * 12
= 13.98% per year
18.A subscription to the magazine “National Tattler” states that you can purchase a one year
subscription for $45 today, which can be renewed after a year at this rate. Alternately, you can purchase a two year subscription for $80 today. If you wish to subscribe to the magazine for two years and your required rate of return is 9% per year, which subscription offer should you choose?
Answer:
PV of the two year subscription = $80
PV of one year subscription and renewal = $45 + 45/1.09
= $86.28
The two year subscription is the cheaper alternative.
Longer Problems
1.Heathcliff is currently 25 years old and expects to retire at age 65. Suppose that Heathcliff
takes a job immediately and can earn $35,000 for the remainder of his working life. What is the present value of his future earnings?
Answer:
n i PV FV PMT Result
40 5 ? 0 $35,000 PV = $600,568
2.In order to finance your dream home, you are considering borrowing $120,000. The annual
percentage rate is 9% and payments are made annually over 5 years. Construct the loan-amortization schedule for the annual payments
Answer:
n i PV FV PMT Result
5 9 –$120,000 0 ? PMT = $30,856
Loan Amortization Schedule is as follows:
3.You are 60 years old and are considering whether it pays to buy an annuity from an insurance
company. For a cost of $25,000, the insurance company will pay you $3,000 per year for the rest of your life. If you can earn 8% per year on your money in a bank account and expect to live until age 80, is it worth buying the annuity? What implied interest rate is the insurance company paying you?
Answer: First compute the present value of the annuity.
n i PV FV PMT Result
20 8 ? 0 $3,000 PV = $29,454.44
Now compute the NPV of the investment of the annuity:
NPV = $29,454.44 - $25,000
= $4,454.44
So the annuity looks worth buying.
To compute the implied interest rate on the annuity, we need to find the discount
rate that makes the NPV zero. On a financial calculator, we find the answer to be
10.32% per year.
4. Gemma Peel is 30 years today and she wishes to accumulate enough money over the next 35 years to provide for a 20 year retirement annuity of $100,000 at the beginning of each year, starting with her 65th birthday. Assume the rate of the return over the entire period will be 11%. What is the present value of this annuity?
Answer:
n i PV FV PMT Result
20 11 ? 0 $100,000 PV = $883,929
Chapter Six The Analysis of Investment Projects This chapter contains 41 multiple choice problems, 20 short problems and 8 longer problems. Multiple Choice 1.The objective of a firm's management is to only undertake the projects that ________ the market value of shareholders' equity. a)decrease b)do not decrease c)change d)do not change Answer: (b) 2.The decision rule that management uses with the net present value is to undertake only those projects with ________ NPV. a) a discounted b) a contingent c) a positive d)negative Answer: (c) 3.If a firm decides to invest in automated machines that will allow the firm to reduce labor costs, this is an example of a ________ capital expenditures project. a)new products b)replacement of existing assets c)cost reduction d)advertising Answer: (c) 4.The NPV of a project represents the amount by which it is expected to increase ________. a)the break-even point b)capital budgeting c)capital expenditures d)shareholder wealth Answer: (d)
Chapter Nine Valuation of Common Stocks This chapter contains 47 multiple choice questions, 17 short problems, and 9 longer problems. Multiple Choice 1.In a quote listing of stocks, the ________ is defined as the annualized dollar dividend divided by the stock’s price, and is usually expressed as a percentage. (a)cash dividend (b)dividend payout (c)dividend coverage (d)dividend yield Answer: (d) 2.According to the discounted-dividend model, the price of a share of stock is the ________ value of all expected ________ dividends per share, discounted at the market capitalization rate. (a)present; current (b)present; future (c)future; future (d)future; current Answer: (b) 3.The value of common stock is determined by which of the following expected cash flows? (a)dividends and interest payments (b)dividends and maturity value of stock (c)dividends and net cash flows from operations of the firm (d)interest payments and maturity value Answer: (c)
Chapter Seven Principles of Market Valuation This chapter contains 30 multiple choice questions，10 short problems and 5 longer problems. Multiple Choice 1.In regard to an asset，the ________ is defined as the process well-informed investors must pay for it in a free and competitive market. (a)analyst value (b)technical value (c)competitive value (d)fundamental value Answer：(d) 2.In corporate finance decision making，an extremely important rule is to choose the investment that ________ current shareholders’ wealth. (a)minimizes (b)maximizes (c)provides zero change in (d)jeopardizes Answer：(b) 3.In asset valuation，the method used to accomplish the estimation depends on the ________. (a)number of participants (b)quality of calculating instruments
CHAPTER 12 CHOOSING AN INVESTMENT PORTFOLIO Objectives ?To understand the process of personal investing in theory and in practice. ?To build a quantitative model of the tradeoff between risk and reward. Outline 12.1 The Process of Personal Portfolio Selection 12.2 The Trade-off between Expected Return and Risk 12.3 Efficient Diversification with Many Risky Assets Summary ?There is no single portfolio selection strategy that is best for all people. ?Stage in the life cycle is an imp ortant determinant of the optimal composition of a person’s optimal portfolio of assets and liabilities. ?Time horizons are important in portfolio selection. We distinguish among three time horizons: the planning horizon, the decision horizon, and the trading horizon. ?In making portfolio selection decisions, people can in general achieve a higher expected rate of return only by exposing themselves to greater risk. ?One can sometimes reduce risk without lowering expected return by diversifying more completely either within a given asset class or across asset classes. ?The power of diversification to reduce the riskiness of an investor’s portfolio depends on the correlations among the assets that make up the portfolio. In practice, the vast majority of assets are positively correlated with each other because they are all affected by common economic factors. Consequently, one’s ability to reduce risk through diversification among risky assets without lowering expected return is limited. ?Although in principle people have thousands of assets to choose from, in practice they make their choices from a menu of a few final products offered by financial intermediaries such as bank accounts, stock and bond mutual funds, and real estate. In designing and producing the menu of assets to offer to their customers these intermediaries make use of the latest advances in financial technology.
Chapter Five Household Savings and Investment Decisions This chapter contains 28 multiple choice questions, 10 short problems, and 9 longer problems. Multiple Choice 1.Getting a professional degree can be evaluated as ________. a) a social security decision b)an investment in human capital c)an investment in a consumer durable d) a tax exempt decision Answer: (b) 2.Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%. You are 30 years before your retirement date and invest $10,000 to a tax deferred retirement plan. If you choose to withdraw the total accumulated amount at retirement, what will you be left with after paying taxes? a)$51,445 b)$64,000 c)$80,501 d)$100,627 Answer: (c) 3.Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%. You are 30 years before your retirement date and have $10,000 to invest. If you invest this in an ordinary savings plan instead of a tax deferred retirement plan, what amount will you have accumulated at retirement? a)$51,445 b)$64,000 c)$80,501 d)$100,627 Answer: (a)
Chapter Four Allocating Resources Over Time This chapter contains 46 multiple-choice questions, 18 short problems and 9 longer problems. Multiple Choice 1.________ is the process of going from present value to future value, whereas ________ is finding the present value of some future amount. (a)Discounting; compounding (b)Compounding; annualizing (c)Compounding; discounting (d)Discounting; leasing Answer: (c) 2.________ refers to the interest rate at which money received before the end of the planning horizon can be reinvested. (a)Internal rate (b)Reinvestment rate (c)Cost of equity (d)Compound interest Answer: (b) 3.The difference between an immediate annuity and an ordinary annuity is ________. (a)the number of periods (b)the amount of the payments (c)the interest rate (d)the timing of the payments Answer: (d)
CHAPTER 1 – Financial Economics End-of-Chapter Problems Defining Finance 1. What are your main goals in life? How does finance play a part in achieving those goals? What are the major tradeoffs you face? SAMPLE ANSWER: ? ? ? ? ? ? ? Finish school Get good paying job which I like Get married and have children Own my own home Provide for family Pay for children’s education Retire How Finance Plays a Role: SAMPLE ANSWER: ? Finance helps me pay for undergraduate and graduate education and helps me decide whether spending the money on graduate education will be a good investment decision or not. ? ? Higher education should enhance my earning power and ability to obtain a job I like. Once I am married and have children I will have additional financial responsibilities (dependents) and I will have to learn how to allocate resources among individuals in the household and learn how to set aside enough money to pay for emergencies, education, vacations etc. Finance also helps me understand how to manage risks such as for disability, life and health. ? Finance helps me determine whether the home I want to buy is a good value or not. The study of finance also helps me determine the cheapest source of financing for the purchase of that home. Finance helps me determine how much money I will have to save in order to pay for my children’s ? education as well as my own retirement. Major Tradeoffs: SAMPLE ANSWER ? Spend money now by going to college (and possibly graduate school) but presumably make more money once I graduate due to my higher education. Consume now and have less money saved for future expenditures such as for a house and/or car or save ? more money now but consume less than some of my friends Financial Decisions of Households 2. What is your net worth? What have you included among your assets and your liabilities? Would you list the value of your potential lifetime earning power as an asset or liability? How does it compare in value to other assets you have listed?
Chapter Two Financial Markets and Institutions This chapter contains 49 multiple-choice questions, 20 short problems and 10 longer problems. Multiple Choice 1. A market that has no one specific location is termed a(n) ________ market. (a)over-the-counter (b)geographic location (c)intermediary (d)conceptual Answer: (a) 2. ________ problems arise because parties to contracts often cannot easily monitor or control one another. (a)Payment (b)Counter (c)Incentive (d)Exchange Answer: (c) 3. Incentive problems take a variety of forms and include: (a)moral hazard (b)adverse selection (c)principal-agent (d)all of the above Answer: (d) 4. The ________ problem exists when having insurance against some risk causes the insured party to take greater risk or to take less care in preventing the event that gives rise to the loss. (a)moral hazard (b)adverse selection (c)principal-agent (d)all of the above Answer: (a)
Chapter Eight Valuation of Known Cash Flows: Bonds This chapter contains 50 multiple choice questions, 18 short problems and 9 longer problems. Multiple Choice 1. A ________ is a quantitative method used to infer an asset's value from market information about the prices of other assets and market interest rates. (a)fixed model (b)perpetual valuation model (c)valuation model (d)variable model Answer: (c) 2.________ are examples of fixed-income securities. (a)Common stock and pension funds (b)Mortgages and pension annuities (c)Mutual funds and common stock (d)Preferred stock and common stock Answer: (b) 3.Consider a fixed-income security that promises to pay $150 each year for the next five years. How much is this five-year annuity worth if the appropriate discount rate is 7% per year? (a)$534.74 (b)$615.03 (c)$802.50 (d)$867.96 Answer: (b) 8-1
博迪《金融学》（第2版）笔记和课后习题详解（修订版）完整版>精研学习?>无偿试用20％资料 全国547所院校视频及题库全收集 考研全套>视频资料>课后答案>往年真题>职称考试 第1部分金融和金融体系 第1章金融学 1.1复习笔记 1.2课后习题详解 第2章金融市场和金融机构 2.1复习笔记 2.2课后习题详解 第3章管理财务健康状况和业绩 3.1复习笔记 3.2课后习题详解 第2部分时间与资源配置 第4章跨期配置资源 4.1复习笔记 4.2课后习题详解 第5章居民户的储蓄和投资决策 5.1复习笔记 5.2课后习题详解 第6章投资项目分析 6.1复习笔记 6.2课后习题详解 第3部分价值评估模型 第7章市场估值原理 7.1复习笔记 7.2课后习题详解 第8章已知现金流的价值评估：债券 8.1复习笔记 8.2课后习题详解 第9章普通股的价值评估 9.1复习笔记 9.2课后习题详解 第4部分风险管理与资产组合理论 第10章风险管理的原理 10.1复习笔记 10.2课后习题详解
第11章对冲、投保和分散化 11.1复习笔记 11.2课后习题详解 第12章资产组合机会和选择 12.1复习笔记 12.2课后习题详解 第5部分资产定价 第13章资本市场均衡 13.1复习笔记 13.2课后习题详解 第14章远期市场与期货市场 14.1复习笔记 14.2课后习题详解 第15章期权市场与或有索取权市场 15.1复习笔记 15.2课后习题详解 第6部分公司金融 第16章企业的财务结构 16.1复习笔记 16.2课后习题详解 第17章实物期权 17.1复习笔记 17.2课后习题详解
Chapter Ten Principles of Risk Management This chapter contains 30 multiple choice questions, 10 short problems, and 5 longer problems. Multiple Choice 1.________ that “matters” because if affects people's welfare. ________ exists whenever one does not know for sure what will occur in the future. (a)Uncertainty is risk; Uncertainty (b)Risk is uncertainty; Uncertainty (c)Risk is uncertainty; Risk (d)Uncertainty is risk; Risk Answer: (b) 2.________ is a measure of willingness to pay to reduce one's exposure to risk. (a)Risk aversion (b)Risk avariciousness (c)Risk predilection (d)Risk inflation Answer: (a) 3.When choosing among investment alternatives with the same expected rate of return, a risk averse individual chooses the one with the ________ risk. (a)surest (b)most uncertain (c)lowest (d)highest Answer: (c) 10-1
博迪《金融学》第2版课后习题及详解 第1章金融学 一、概念题 1．金融学（finance） 答：金融学是一项针对人们怎样跨期配置稀缺资源的研究。其主要研究货币领域的理论及货币资本资源的配置与选择、货币与经济的关系及货币对经济的影响、现代银行体系的理论和经营活动的经济学科，是当代经济学的一个相对独立而又极为重要的分支。金融学所涵盖的内容极为丰富，诸如货币原理、货币信用与利息原理、金融市场与银行体系、储蓄与投资、保险、信托、证券交易、货币理论、货币政策、汇率及国际金融等。 2．金融体系（financial system） 答：金融体系是金融市场以及其他金融机构的集合，这些集合被用于金融合同的订立以及资产和风险的交换。金融体系是由连接资金盈余者和资金短缺者的一系列金融中介机构和金融市场共同构成的一个有机体，包括股票、债券和其他金融工具的市场、金融中介（如银行和保险公司）、金融服务公司（如金融咨询公司）以及监控管理所有这些单位的管理机构等。研究金融体系如何发展演变是金融学科的重要方面。 3．资产（assets） 答：资产是指个人、公司或者组织拥有的具有商业或交换价值的任何物品，它能在未来产生经济利益，资产有三个非常重要的特征：①能在未来产生经济利益；②由实体控制；③由过去发生的事项或交易产生。
在国民账户体系中，资产是指经济资产，即所有者能对其行使所有权，并在持有或使用期间可以从中获得经济利益的资源或实体。资产可分为金融资产和非金融资产两大类。金融资产是指以价值形态或以金融工具形式存在的资产，它包括金融债权以及货币黄金和特别提款权。非金融资产是指非金融性的资产，它包括生产资产和非生产资产。 在企业财务会计中，资产是指由过去的交易和事项所形成的，并由企业拥有或控制，预期会给企业带来经济利益的资源。按流动性可分为流动资产和非流动资产两大类。流动资产是指企业可以在一年或超过一年的一个营业周期内变现或者耗用的资产。非流动资产是指不能在一年或者超过一年的一个营业周期内变现或耗用的资产。 4．资产配置（asset allocation） 答：资产分配是指将投资在各种资产（如股票、债券、不动产和现金等）中进行分配的过程。根据某人或者某机构特定情况和目标进行资产分配，可使投资的风险—收益组合最优化。资产配置是财务规划和资金管理中的一个重要概念。 5．负债（liability） 答：负债是指一个经济主体对另一个经济主体应尽的偿还义务，即应偿付的债务。常用的负债概念有金融负债和企业负债。金融负债指金融交易中的负债，它与金融债权相对应。金融债权和金融债务产生于一个经济主体向另一个经济主体提供资金时所缔结的契约关系，是同时对应存在的。企业负债指过去的交易、事项形成的现时义务，履行该义务预期会导致经济利益流出企业。企业负债按流动性分为流动负债和长期负债。流动负债指应在一年或者在超过一年的一个营业周期内偿还的债务；长期负债指偿还期在一年以上或者在超过一年的一个营业周期以上的负债。
博迪莫顿版金融学(第二版)课后习题答案
金融学（第二版）答案 博迪默顿 第一章课后习题答案 一 . 我的生活目标： ●完成学业 ●找到一份自己喜欢且收入不菲的工作 ●结婚和生养子女 ●拥有我自己的房子 ●供养我的家庭生活 ●供养孩子上学 ●退休 在我实现目标的过程中，金融所扮演的角色： 答案样例：1，金融现在可以为我提供大学本科及研究生教育的学费并帮我完成学业，帮我决定投资于上学是否是一个好的投资决定 2，高等教育可以帮助提高我赚钱的能力以及获得一个我喜欢的工作的能力 3，当我结婚并且有了孩子以后，我就有了额外的金融责任（以具体情况
负债包括：学生贷款 信用卡结余的差额 各种租用金的协定（不包括转租） 应付车款 在计算净值时学生会特别地排除了他们一生潜在的赚钱能力的价值 三．一个单身汉之需要养活他自己，所以他可以独立自主的作出金融决策。如果他不想购买健康保险（而愿意承担由这个决定而带来的金融风险）那么除了这个单身汉自身，没谁会受这个决定的影响。另外，他不需要在家庭成员之间分配收入这件事上做任何决定。单身汉是很灵活自由的，可以选择住在几乎任何地方。他主要是在今天的消费（开支）和为明天储蓄之间做出权衡决策。既然他只需要养活他自己，那么他储蓄的重要性就比对一家之主的重要性小。 有许多孩子的一家之长必须在这些家庭成员中分配资源[或者说是收入].他们必须随时准备着处理各种风险,比如说潜在财政危机的突然发生[诸如家庭成员经历的严重健康问题,或者
因为火灾和其他疏忽导致的保险问题].因为在一般一个家庭里人会比较多,有些人生病或受伤的风险就会更大.并且因为家庭中有许多依赖性的个体,所以薪水收入者得认真地考虑生活和残疾保险.还有,家庭并不像个体那样富有机动性,这是因为有了适龄儿童的缘故,这个家庭会想离所谓好的学校近一点,同时良好的教育会对孩子将来的生活和财政状况有所裨益.因此一家之主的资源配置会更加的复杂:要有更多的钱于目前的消费（这也是他或她需要来抚养成员的）,但是同时又需要更多的钱储蓄起来以支付未来的费用,诸如教育和房屋购置,还有风险投资,比如生活和残障保险. 四．在双收入家庭中,家庭失去全部经济收入的风险比单收入家庭要小,同时,单收入家庭比双收入家庭更愿意购买残疾保险,人身保险.然而,如果单收入家庭需要有人照顾放学后回家的孩子,他们还要再支付照看小孩的额外费用. 五．学生们结合他们具体的经历和看法会给出不同的答案。很多的人很可能会说应该是在完成学业，并获得一份可观收入的工作之后实现经济上的独立。
Chapter Thirteen Capital Market Equilibrium This chapter contains 43 multiple choice questions, 19 short problems, and 9 longer problems. Multiple Choice 1.If one holds a diversified portfolio in which securities are held in the same relative proportions as in a broad market index, this is referred to as ________. (a)eliminating (b)discounting risk (c)indexing (d)capitalizing Answer: (c) 2.The CAPM provides a way of estimating ________ for use in a variety of financial applications. (a)actual rates of return (b)expected rates of return (c)expected standard deviation (d)actual standard deviation Answer: (b) 3.The CAPM may be used to provide ________. (a)inputs to DCF valuation model for stocks (b)inputs to DCF valuation model for bonds (c)estimation of a “fair” rate of return on invested capital (d)both (a) and (c) Answer: (d) 13-1
CHAPTER 10 AN OVERVIEW OF RISK MANAGEMENT Objectives ?To explore how risk affects financial decision-making. ?To provide a conceptual framework for the management of risk. ?To explain how the financial system facilitates the efficient allocation of risk-bearing. Outline 10.1 What Is Risk? 10.2 Risk and Economic Decisions 10.3 The Risk Management Process 10.4 The Three Dimensions of Risk Transfer 10.5 Risk Transfer and Economic Efficiency 10.6 Institutions for Risk Management 10.7 Portfolio Theory: Quantitative Analysis for Optimal Risk Management 10.8 Probability Distributions of Returns Summary ?Risk is defined as uncertainty that matters to people. Risk management is the process of formulating the benefit-cost trade-offs of risk-reduction and deciding on a course of action to take. Portfolio theory is the quantitative analysis of those trade-offs to find an optimal course of action. ?All risks are ultimately borne by people in their capacity as consumers, stakeholders of firms and other economic organizations, or taxpayers. ?The riskiness of an asset or a transaction cannot be assessed in isolation or in the abstract; it depends on the specific frame of reference. In one context, the purchase or sale of a particular asset may add to one’s risk exposure; in another, the same transaction may be risk-reducing. ?Speculators are investors who take positions that increase their exposure to certain risks in the hope of increasing their wealth. In contrast, hedgers take positions to reduce their exposures. The same person can be a speculator on some exposures and a hedger on others. ?Many resource-allocation decisions, such as saving, investment, and financing decisions, are significantly influenced by the presence of risk and therefore are partly risk-management decisions. ?We distinguish among five major categories of risk exposures for households: sickness, disability, and death; job loss; consumer-durable asset risk; liability risk; and financial asset risk. ?Firms face several categories of risks: production risk, price risk of outputs, and price risk of inputs. ?There are five steps in the risk-management process: risk identification, risk assessment, selection of risk-management techniques, implementation, review. ?There are four techniques of risk management: r isk avoidance, loss prevention and control, risk retention, risk transfer. ?There are three dimensions of risk transfer: hedging, insuring, and diversifying. ?Diversification improves welfare by spreading risks among many people, so that the existing uncertainty matters less. ?From society’s perspective risk-management institutions contribute to economic efficiency in two important ways. First, they shift risk away from those who are least willing or able to bear it to those who are most willing to bear it. Second, they cause a reallocation of resources to production and consumption in accordance with the new distribution of risk-bearing. By allowing people to reduce their exposure to the risk of undertaking certain business ventures, they may encourage entrepreneurial behavior that can have a benefit to society. ?Over the centuries, various economic organizations and contractual arrangements have evolved to facilitate a more efficient allocation of risk-bearing by expanding the scope of diversification and the types of risk that are shifted. ?Among the factors limiting the efficient allocation of risks are transactions costs and problems of adverse selection and moral hazard.