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

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1. Which loan has the higher effective annual rate (EAR)?
2. A perpetuity pays $100 every year forever. If the discount rate is 8%, what is the present value of this perpe
3. According to the Pecking Order Theory, which of the following is a firm's least preferred source of funding?
4. What is the Multiple of Invested Capital (MOIC) for the equity investors?
5. If the WACC is 10%, what is the Equivalent Annual Annuity (EAA) of Project A?
6. What is the net profit per share for the investor?
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. The scholarship is intended to grow by 3% annually to keep pace with inflation. If the foundation's required r
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. According to the Dividend Irrelevance Proposition by Miller and Modigliani, why does the payout policy not aff
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. If the expected recovery rate is 40%, what is the implied annual probability of default (hazard rate)?
15. Acquirer A (P/E = 20) is buying Target T (P/E = 15) in an al… — Assuming no synergies and no deal costs, how w
16. If the expected recovery rate (R) on the debt is 40%, what is the market-implied annual probability of default
17. Assuming no synergies and no deal-related accounting adjustments, what will be the immediate impact on the acq
18. Under the new lease accounting standard (ASC 842), how does the classification of a lease as an 'operating lea
19. If no synergies are realized and no premium is paid, what is the immediate impact on the pro forma earnings pe
20. A firm projects that a merger will generate $100M in annual… — If the firm applies a 10x EBITDA multiple to th
21. 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
22. How is the difference in spreads settled at the start of the contract?
23. Using the Fisher equation, what is the exact real required rate of return?
24. A company is acquiring a target in a 100% stock-for-stock deal. The acquirer has a P/E of 20x and the target h
25. Using the binomial model, what is the current value of the call option?
26. An investor views a volatility smile in the S&P 500 index op… — This 'skew' most directly contradicts which as
27. If the WACC is 8%, what is the total Enterprise Value (EV)?
28. If 90 days have passed since the last coupon payment in a 360-day year, what is the Dirty Price?
29. Which Greek measures an option's sensitivity to the passage of time?
30. A portfolio manager achieves a return of +20% in Year 1 and… — What is the geometric mean return (CAGR) for th