Chapter 7 MC

Question 1

An HP-10BII can solve problems with up to 15 beginning-of-year cash flows when there are no consecutive equal cash flows.

Answer 1

True

Question 2

The CFj key assumes that payments begin immediately; consequently it makes no difference whether an HP-10BII is set for beginning-of-year or end-of-year payments

Answer 2

True

Question 3

The HP-10BII can directly compute the future value of a series of uneven cash flows.

Answer 3

False. The HP-10BII is unable to directly compute the future value of a series of uneven cash flows. The way to solve this type of problem is to divide it into two separate parts.

Question 4

The NPV of an investment is the interest rate that equates the present value of the stream of cash inflows with the present value of the stream of cash outflows.

Answer 4

False. The NPV of an investment is the present value of the stream of cash inflows minus the present value of the stream of cash outflows.

Question 5

In most cases, the IRR method is more reliable than the NPV method for ranking several competing investment possibilities

Answer 5

False. In most cases, the NPV method is more reliable than the IRR method for ranking several competing investment possibilities.

Question 6

The presence of one or more years of cash outflows after the cash inflows from an investment project have begun makes it impossible to calculate the project’s IRR with an HP-10BII.
Answer

Answer 6

False. An HP-10BII is able to calculate a project’s IRR even when there is one or more years of cash outflows after the cash inflows from the project have begun.

Question 7

The more frequently compounding occurs, the greater the future value of a single sum.

Answer 7

True

Question 8

If the nominal annual interest rate is 8 percent and compounding occurs quarterly, the effective annual interest rate is more than 8 percent

Answer 8

True

Question 9

A corporate bond is a frequently encountered security that includes a simple annuity with payments occurring more frequently than annually.

Answer 9

True

Question 10

An example of a complex annuity is a series of six quarterly deposits credited with interest quarterly beginning 3 months from now.

Answer 10

False. A series of six quarterly deposits credited with interest quarterly beginning 3 months from now is an example of a simple annuity, not a complex one.