time-value-of-money — Principles of Finance Practice Questions

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1. Which loan has the higher effective annual rate (EAR)?
2. What is the Multiple of Invested Capital (MOIC) for the equity investors?
3. What is the net profit per share for the investor?
4. According to the Pecking Order Theory, which of the following is a firm's least preferred source of funding?
5. If the WACC is 10%, what is the Equivalent Annual Annuity (EAA) of Project A?
6. A perpetuity pays $100 every year forever. If the discount rate is 8%, what is the present value of this perpe
7. Using the formula for future value, what will the account balance be after 10 years?
8. What is the primary difference between an 'Ordinary Annuity' and an 'Annuity Due'?
9. According to the Dividend Irrelevance Proposition by Miller and Modigliani, why does the payout policy not aff
10. Which account provides a higher effective return?
11. What is the value of a 1-year European call option with a strike price of $100 using the one-period binomial m
12. The scholarship is intended to grow by 3% annually to keep pace with inflation. If the foundation's required r
13. A $1,000 face value bond with a 5% annual coupon has 5 years to maturity. If the current market yield is 6%, w
14. Assuming no synergies and no deal-related accounting adjustments, what will be the immediate impact on the acq
15. Under the new lease accounting standard (ASC 842), how does the classification of a lease as an 'operating lea
16. Acquirer A (P/E = 20) is buying Target T (P/E = 15) in an al… — Assuming no synergies and no deal costs, how w
17. If the expected recovery rate (R) on the debt is 40%, what is the market-implied annual probability of default
18. If the expected recovery rate is 40%, what is the implied annual probability of default (hazard rate)?
19. Using the Black-Scholes-Merton model, where d_1 = -0.0744, d_2 = -0.2512, N(d_1) = 0.4704, and N(d_2) = 0.4009
20. How is the difference in spreads settled at the start of the contract?
21. A firm projects that a merger will generate $100M in annual… — If the firm applies a 10x EBITDA multiple to th
22. If the WACC is 8%, what is the total Enterprise Value (EV)?
23. An investor views a volatility smile in the S&P 500 index op… — This 'skew' most directly contradicts which as
24. Using the binomial model, what is the current value of the call option?
25. Using the Fisher equation, what is the exact real required rate of return?
26. If 90 days have passed since the last coupon payment in a 360-day year, what is the Dirty Price?
27. A portfolio manager achieves a return of +20% in Year 1 and… — What is the geometric mean return (CAGR) for th
28. If a corporate bond is quoted with a nominal annual rate of 8% but compounds semiannually, what is its Effecti
29. A stock investment returns +20% in Year 1 and -20% in Year 2… — What are the arithmetic mean and the geometric
30. If your required rate of return is 5%, what is the present value of this perpetuity?