Interest Rates - Present Value and Future Value

21 questions
Question 1 of 21

Consider the following:
I. $PV = PMT/r$
II. $PV = FV_t/(1 + r)^t$
III. $A = r(PV)/(1 - (1 + r)^{-t})$
How many of the above are presented as the simplified present value formula for a perpetuity or perpetual fixed periodic cash flow without early redemption?

Question 2 of 21

A discount bond will pay INR 100 in 20 years. If the market discount rate is 6.70% with annual compounding, the present value is most likely?

Question 3 of 21

A bond is trading at EUR 95.72 and will pay EUR 100 in 4 years. The yield to maturity is most likely?

Question 4 of 21

Consider the following:
I. Required rate of return
II. Discount rate
III. Maturity premium
How many of the above are described as an interpretation of an interest rate and also noted as being used almost interchangeably with the term interest rate?

Question 5 of 21

Consider the following:
I. Borrow for two years at the two-year rate.
II. Invest for one year at the one-year rate and reinvest for one more year at the forward rate.
III. Lock in the forward rate so that the two strategies produce equivalent future values.
How many of the above are part of the CFA Curriculum's implied forward rate framework?

Question 6 of 21

Consider the following:
I. Price of a bond equals the sum of the present values of promised coupon payments and par value.
II. For discount bonds, price reflects only the present value of par value.
III. Value of a stock should reflect the sum of the present values of expected future dividends in perpetuity.
How many of the above are stated in the CFA Curriculum?

Question 7 of 21

Consider the following:
I. Discount bond
II. Coupon bond
III. Mortgage annuity
How many of the above have the investor's sole source of return as the difference between the initial price paid and the full principal received at maturity?

Question 8 of 21

An investor places USD 100 today in an account that earns 5% per year for 2 years. The future value is most likely?

Question 9 of 21

Consider the following:
I. Constant dividends
II. Constant dividend growth rate
III. Changing dividend growth rate
How many of the above assume the investor receives a fixed periodic dividend rather than an initial dividend expected to grow over time?

Question 10 of 21

Consider the following:
I. Present value and future value factors are reciprocals.
II. Changing compounding frequency changes that reciprocal relationship.
III. Monthly compounding requires use of the periodic rate and the corresponding number of periods.
How many of the above are consistent with the CFA Curriculum?

Question 11 of 21

Consider the following:
I. Discount cash flow pattern
II. Periodic interest cash flow pattern
III. Level-payment cash flow pattern
How many of the above involve uniform cash flows at pre-determined intervals through maturity that represent both interest and principal repayment?

Question 12 of 21

Consider the following:
I. $A$
II. $PV$
III. $t$
How many of the above are defined in the annuity formula as the number of payment periods?

Question 13 of 21

Consider the following:
I. $FV_t = PV(1 + r)^t$
II. $PV_t = FVe^{-rt}$
III. $PV = FV_t/(1 + r)^t$
How many of the above are the continuous-time expression for present value?

Question 14 of 21

A pension fund needs CAD 5,000,000 in 10 years. If the quoted annual rate is 6% compounded monthly, the amount to invest today is most likely?

Question 15 of 21

Consider the following:
I. Inflation premium
II. Liquidity premium
III. Opportunity cost
How many of the above compensate investors for the risk of loss relative to fair value if an investment must be converted to cash quickly?

Question 16 of 21

A cash flow of USD 121 will be received in 2 years. If the discount rate is 10% per year, the present value is most likely?

Question 17 of 21

Consider the following:
I. Inflation premium
II. Liquidity premium
III. Maturity premium
How many of the above are identified in the CFA Curriculum as premiums that may be embedded in an interest rate in addition to the real risk-free rate?

Question 18 of 21

A German government bond will pay EUR 100 in 10 years. If the annual yield is -0.05%, the present value at issuance is most likely?

Question 19 of 21

Consider the following:
I. Real risk-free interest rate
II. Liquidity premium
III. Discount rate
How many of the above are identified as premiums that compensate investors for bearing a distinct type of risk?

Question 20 of 21

A discount bond is priced at INR 22.68224 today and will pay INR 100 in 20 years. The implied annual interest rate is most likely?

Question 21 of 21

Consider the following:
I. The present value of the difference in two strategies can be zero when the strategies are economically equivalent.
II. Cash flow additivity supports no-arbitrage pricing.
III. Comparing two economically equivalent strategies is used in the CFA Curriculum to illustrate cash flow additivity.
How many of the above are consistent with the CFA Curriculum?