BUSINESS MATHEMATICS
MCQs on Time Value of Money
1.Money has a time value is shown by which of the following concepts:
a: market value b: face value c: present value d: b and c
2 The cash inflow is called:
a: negative cash flow
b: positive cash flow
c: balanced cash flow d. b or c
3 The cash outflow is known as :
a: negative cash flow
b: positive cash flow
c:balanced cash flow d. a or c
4 A cash flow of future has less value due to which of the following (which is not correct):
a: present consumption is preferred over future consumption
a: money value gets eroded due to inflation
a: receipt of cash in future is subject to uncertainties
b: none of the above
5 The process through which the future cash flows are adjusted is called:
a: discounting
b: compounding
c:balancing
d: any of the above
6 The rate at which the present and future cash flows are traded off (exchanged), is called:
a: interest rate
b: discount rate
c:compounding rate
d: yield to maturity
7 If inflation rate is higher in an economy, the
discount rate should generally:
a: be lower
b: be higher
c: be stable
d: be fluctuating
8 If there is lower level of uncertainty about future
cash flows, the discount rate should generally:
a: be lower b: be higher c: be stabled: be fluctuating
9 A lower discount rate leads to ________ present
value for the future cash flows:
a: stable b: higher c: lower d: fluctuating
10 Cash flows of different points of time can be compared or aggregated by:
a: converting them to future flows
b: brining them to the same point in time
c: converting them to standard flows d. a or b
11. Which of the following is not a type of cash flow:
a: simple cash flow
b: annuities or growing annuities
c: perpetuities or growing perpetuities
d: future yields to maturities
12 A single cash flow in a specified future time period is called:
a: simple cash flow
b: annuities
c: perpetuities
d: growing annuities
13 The process in which a present cash flow is converted in to its expected future value is called:
a: discounting b: compounding c: balancing d: any of the above
14 Present value can be calculated as ________
C i, where C 1 means the expected payoff at period 1
a: compounding factor
b: discount factor
C: interest factor
d: yield factor
15 Value today of Re 1 to be received in future is called:
a: present value
b: compound factor
c: discount factor
d: yield factor
16 Discount factor is denoted by which of the following:
a: 1 / (1-r) b: 1 / (1+r) c: 1 x (1-r) d: 1 x (1+r)
17 X is expecting a cash flow of Rs.10 lac at the end of one year. At 8% discount rate, what is the present value:
a: 952692 b: 962592 c: 925926 d: 925962
18 Present value — required investment = ?
a: discounted value
b: compounded value
c: net present value
d: future value
19 X is expecting a cash flow of Rs.10 lac at the end of one year for his investment of Rs.8 lac in a housing property. At 8% discount rate, what
is the net present value:
a: 152692 b: 125926 c: 162592 d: 125962
20 C 0 / {C 1 / (1+r)} (where C 0 represents cash flow at time 0 i.e. today and C1 at the end of one year), stands for:
a: present value
b: net present value
c: future value
d: discounted value
21 Real cash flow =________/ (1 + inflation rate)
a: actual cash flow
b: nominal cash flow
c: present cash flow
d: future cash flow
22 Z decides to invest Rs.4 lac in an immovable property that fetches him Rs.5 lac, at the end of an year, what is his return (use
the formula profit / investment):
a: 10% b: 15% c: 20% d: 25%
23 An investment opportunity can be availed where the net present value is _:
a: zero
b: negative
c: positive
d: none of the above
24 An investment opportunity can be availed where the rate of return is their cost of capital:
a: less than, discount
b: more than, opportunity cost c. less than, opportunity cost, d: more than, discount
25 Future value of a simple cash flow = x (1+r) t
where r is discount rate:
a: future cash flow called CF
b: present cash flow called CF
c: discounted cash flow called CF 0
d: none of the above
26 With the help of formula (1 + stated annual interest rate) n / N ) 1 (where N stands for no. of compounding periods say semiannual
=2 and monthly = 12) which of the following can be calculated:
a: discounted value
b: nominal interest rate
c:effective interest rate
d: yield to maturity
27 The rate of interest is 8% and compounding is semi-annual, what will be effective interest rate:
a: 8%
b: 8.16%
c: 8.25%
d: 8.32%
28 If the rate of interest is 10% and compounding is annual, what will be the effective interest rate:
a: 10%
b: 10.25%
c: 10.47%
d: 10.5171
29 If the rate of interest is 10% and compounding is semi-annual, what will be the effective interest rate:
a: 10% h: 10.75% c: 10.47%d: 10.5171
30 If the rate of interest is 10% and compounding is monthly, what will be the effective interest rate:
a: 10% b: 10.25% c: 10.47% d: 10.5171
31 If the rate of interest is 10% and compounding is continuous, what will be the effective interest rate:
a: 10% b: 10.25% c: 10.47% d: 10.5171
32 A continuous cash flow that occurs at regular interval of time is called:
a: future value b: present value c: perpetuity d: annuity
33 Present value of annuity can be calculated by use of which of the formula: (where A = annuity, r=discount rate n = no. of years, g=
expected growth rate - a: PV (A, g,n) b: PV (A, r,n) C: PV (A, r,g) d: PV (g, r,n)
34 What is the present value of Rs.180000 which is paid every year over a period of 5 years by assuming the rate of interest at 12%:
a: 348680 b: 346880 c: 348860d: 384860
35 Future value of an end-of-the-period annuity can be calculated as:
a: FV (A, r, g) b: FV (A, g, n) c: FV (A, g, r) d: FV (A, r, n)
36 A loan for which only interest is paid during its repayment period while the principal is repaid at the end is called:
a: term loan
b: interest demand loan
c: lump-sum payment loans
d: balloon repayment loan
37 Which of the following is an example of a balloon repayment loan:
a: bonds and debentures
b: bonds and term loans
c: debentures and term loans
d: all the above
38 A fund which is created by companies to make
payment of balloon repayment loans by regular annual contributions to have adequate funds at the end of the period, when
repayment falls due is called:
a: reserve fund balloon fund
c: sinking fund
d: repayment fund
39 A cash flow that grows at a constant rate for a specified period of time is called:
a: annuity
b: perpetuity
c: growing annuity
d: growing perpetuity
40 Present value of a growing annuity for n years can be calculated, where r=9:
a: growing annuity x no. of periods over which cash flows are to be received or paid
b: annuity x no. of periods over which cash flows are to be received or paid
c: growing perpetuity x no. of periods over which cash flows are to be received or paid
d: none of the above.
41. A constant flow paid or received at regular time intervals for ever is known as:
a: annuity
perpetuity
c: growing annuity
d: growing perpetuity
42 A bond that has no maturity and pays a fixed coupon (or rate of interest) is called:
a: long term bonds
b: perpetual bonds console bonds
d: non-repayable bonds
43 A cash flow that is expected to grow at a constant rate forever, is called:
a: annuity
b: perpetuity
C: growing annuity
d: growing perpetuity
Answers
01 c 02 b 03 a 04 d 05 a
06 b 07 b 08 a 09 10 b
11 d 12 a 13 b 14 b 15 c
16 b 17 c 18 c 19 b 20 b
21 b 22 d 23 24 b 25 b
26 c 27 b 28 a 29 b 30 C
31 d 32 d 33 b 34 c 35 d
36 d 37 a 38 c 39 c 40 a
41 b 42 c 43 d
MCQs on Time Value of Money
1.Money has a time value is shown by which of the following concepts:
a: market value b: face value c: present value d: b and c
2 The cash inflow is called:
a: negative cash flow
b: positive cash flow
c: balanced cash flow d. b or c
3 The cash outflow is known as :
a: negative cash flow
b: positive cash flow
c:balanced cash flow d. a or c
4 A cash flow of future has less value due to which of the following (which is not correct):
a: present consumption is preferred over future consumption
a: money value gets eroded due to inflation
a: receipt of cash in future is subject to uncertainties
b: none of the above
5 The process through which the future cash flows are adjusted is called:
a: discounting
b: compounding
c:balancing
d: any of the above
6 The rate at which the present and future cash flows are traded off (exchanged), is called:
a: interest rate
b: discount rate
c:compounding rate
d: yield to maturity
7 If inflation rate is higher in an economy, the
discount rate should generally:
a: be lower
b: be higher
c: be stable
d: be fluctuating
8 If there is lower level of uncertainty about future
cash flows, the discount rate should generally:
a: be lower b: be higher c: be stabled: be fluctuating
9 A lower discount rate leads to ________ present
value for the future cash flows:
a: stable b: higher c: lower d: fluctuating
10 Cash flows of different points of time can be compared or aggregated by:
a: converting them to future flows
b: brining them to the same point in time
c: converting them to standard flows d. a or b
11. Which of the following is not a type of cash flow:
a: simple cash flow
b: annuities or growing annuities
c: perpetuities or growing perpetuities
d: future yields to maturities
12 A single cash flow in a specified future time period is called:
a: simple cash flow
b: annuities
c: perpetuities
d: growing annuities
13 The process in which a present cash flow is converted in to its expected future value is called:
a: discounting b: compounding c: balancing d: any of the above
14 Present value can be calculated as ________
C i, where C 1 means the expected payoff at period 1
a: compounding factor
b: discount factor
C: interest factor
d: yield factor
15 Value today of Re 1 to be received in future is called:
a: present value
b: compound factor
c: discount factor
d: yield factor
16 Discount factor is denoted by which of the following:
a: 1 / (1-r) b: 1 / (1+r) c: 1 x (1-r) d: 1 x (1+r)
17 X is expecting a cash flow of Rs.10 lac at the end of one year. At 8% discount rate, what is the present value:
a: 952692 b: 962592 c: 925926 d: 925962
18 Present value — required investment = ?
a: discounted value
b: compounded value
c: net present value
d: future value
19 X is expecting a cash flow of Rs.10 lac at the end of one year for his investment of Rs.8 lac in a housing property. At 8% discount rate, what
is the net present value:
a: 152692 b: 125926 c: 162592 d: 125962
20 C 0 / {C 1 / (1+r)} (where C 0 represents cash flow at time 0 i.e. today and C1 at the end of one year), stands for:
a: present value
b: net present value
c: future value
d: discounted value
21 Real cash flow =________/ (1 + inflation rate)
a: actual cash flow
b: nominal cash flow
c: present cash flow
d: future cash flow
22 Z decides to invest Rs.4 lac in an immovable property that fetches him Rs.5 lac, at the end of an year, what is his return (use
the formula profit / investment):
a: 10% b: 15% c: 20% d: 25%
23 An investment opportunity can be availed where the net present value is _:
a: zero
b: negative
c: positive
d: none of the above
24 An investment opportunity can be availed where the rate of return is their cost of capital:
a: less than, discount
b: more than, opportunity cost c. less than, opportunity cost, d: more than, discount
25 Future value of a simple cash flow = x (1+r) t
where r is discount rate:
a: future cash flow called CF
b: present cash flow called CF
c: discounted cash flow called CF 0
d: none of the above
26 With the help of formula (1 + stated annual interest rate) n / N ) 1 (where N stands for no. of compounding periods say semiannual
=2 and monthly = 12) which of the following can be calculated:
a: discounted value
b: nominal interest rate
c:effective interest rate
d: yield to maturity
27 The rate of interest is 8% and compounding is semi-annual, what will be effective interest rate:
a: 8%
b: 8.16%
c: 8.25%
d: 8.32%
28 If the rate of interest is 10% and compounding is annual, what will be the effective interest rate:
a: 10%
b: 10.25%
c: 10.47%
d: 10.5171
29 If the rate of interest is 10% and compounding is semi-annual, what will be the effective interest rate:
a: 10% h: 10.75% c: 10.47%d: 10.5171
30 If the rate of interest is 10% and compounding is monthly, what will be the effective interest rate:
a: 10% b: 10.25% c: 10.47% d: 10.5171
31 If the rate of interest is 10% and compounding is continuous, what will be the effective interest rate:
a: 10% b: 10.25% c: 10.47% d: 10.5171
32 A continuous cash flow that occurs at regular interval of time is called:
a: future value b: present value c: perpetuity d: annuity
33 Present value of annuity can be calculated by use of which of the formula: (where A = annuity, r=discount rate n = no. of years, g=
expected growth rate - a: PV (A, g,n) b: PV (A, r,n) C: PV (A, r,g) d: PV (g, r,n)
34 What is the present value of Rs.180000 which is paid every year over a period of 5 years by assuming the rate of interest at 12%:
a: 348680 b: 346880 c: 348860d: 384860
35 Future value of an end-of-the-period annuity can be calculated as:
a: FV (A, r, g) b: FV (A, g, n) c: FV (A, g, r) d: FV (A, r, n)
36 A loan for which only interest is paid during its repayment period while the principal is repaid at the end is called:
a: term loan
b: interest demand loan
c: lump-sum payment loans
d: balloon repayment loan
37 Which of the following is an example of a balloon repayment loan:
a: bonds and debentures
b: bonds and term loans
c: debentures and term loans
d: all the above
38 A fund which is created by companies to make
payment of balloon repayment loans by regular annual contributions to have adequate funds at the end of the period, when
repayment falls due is called:
a: reserve fund balloon fund
c: sinking fund
d: repayment fund
39 A cash flow that grows at a constant rate for a specified period of time is called:
a: annuity
b: perpetuity
c: growing annuity
d: growing perpetuity
40 Present value of a growing annuity for n years can be calculated, where r=9:
a: growing annuity x no. of periods over which cash flows are to be received or paid
b: annuity x no. of periods over which cash flows are to be received or paid
c: growing perpetuity x no. of periods over which cash flows are to be received or paid
d: none of the above.
41. A constant flow paid or received at regular time intervals for ever is known as:
a: annuity
perpetuity
c: growing annuity
d: growing perpetuity
42 A bond that has no maturity and pays a fixed coupon (or rate of interest) is called:
a: long term bonds
b: perpetual bonds console bonds
d: non-repayable bonds
43 A cash flow that is expected to grow at a constant rate forever, is called:
a: annuity
b: perpetuity
C: growing annuity
d: growing perpetuity
Answers
01 c 02 b 03 a 04 d 05 a
06 b 07 b 08 a 09 10 b
11 d 12 a 13 b 14 b 15 c
16 b 17 c 18 c 19 b 20 b
21 b 22 d 23 24 b 25 b
26 c 27 b 28 a 29 b 30 C
31 d 32 d 33 b 34 c 35 d
36 d 37 a 38 c 39 c 40 a
41 b 42 c 43 d
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