Chapter 04 Discounted Cash Flow Valuation Answer Key
Multiple Choice Questions
1. An annuity stream of cash flow payments is a set of:
A. level cash flows occurring each time period for a fixed length of time.
B. level cash flows occurring each time period forever.
C. increasing cash flows occurring each time period for a fixed length of time.
D. increasing cash flows occurring each time period forever. E. arbitrary cash flows occurring each time period for no more than 10 years.
Difficulty level: Easy Topic: ANNUITY Type: DEFINITIONS
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2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period. A. ordinary annuities; early annuities B. late annuities; straight annuities C. straight annuities; late annuities D. annuities due; ordinary annuities E. ordinary annuities; annuities due
Difficulty level: Easy Topic: ANNUITIES DUE Type: DEFINITIONS
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3. An annuity stream where the payments occur forever is called a(n):
A. annuity due. B. indemnity. C. perpetuity.
D. amortized cash flow stream. E. amortization table.
Difficulty level: Easy Topic: PERPETUITY Type: DEFINITIONS
4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate. A. stated annual interest B. compound annual interest C. effective annual interest D. periodic interest E. daily interest
Difficulty level: Easy Topic: STATED INTEREST RATES Type: DEFINITIONS
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5. The interest rate expressed as if it were compounded once per year is called the _____ rate. A. stated interest B. compound interest C. effective annual D. periodic interest E. daily interest
Difficulty level: Easy Topic: EFFECTIVE ANNUAL RATE Type: DEFINITIONS
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6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate. A. effective annual B. annual percentage C. periodic interest D. compound interest E. daily interest
Difficulty level: Easy Topic: ANNUAL PERCENTAGE RATE Type: DEFINITIONS
7. Paying off long-term debt by making installment payments is called:
A. foreclosing on the debt. B. amortizing the debt. C. funding the debt. D. calling the debt. E. None of the above.
Difficulty level: Easy Topic: AMORTIZATION Type: DEFINITIONS
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