Corporate Finance

1. Compound interest is defined as the interest earned

Only on the initial investment

On both the initial principal and all interest earned and reinvested in prior periods

Timing of the annuity payments

2. The process of adding the interest earned on an investment to the original investment to the original investment in order to earn more interest is call

Discounting

Compounding

Future value

3. Which one of the following is the correct formula for computing the present value of a lump sum to be received sometime in the future

Fv=pv/(1+r)t

Pv=fv/(1+r)t

4. By definition a bank that pays simple interest on a savings account will pay interest

Only on the initial investment

Only at the beginning of the investment period

5. What is the principal amount of a bond that is repaid at the end of the loan term called?

Face Value

Coupon

Accrued price

Dirty Price

Market Price

6. The interest rate used to compute the present value of a future cash flow is called

Discount rate

Future value

Present value

Discounting

7. Which one of the following is the correct formula for the future value of a lump sum invested today

FV =PV/(1+r)t

Fv=PV x(1+r)t

PV=FV/(1+r)t

8. The value of an investment after one or more times periods is called the

Present value

Discount rate

Future value

Compounding

9. The current value of futyre cash flows discounted at the appropriate discount rate is call

Future value

Present value

Discount rate