General Principles Chapter 4

Question 1

Present Value

Answer 1

The amount of money received or deposited when a loan or investment begins

Question 2

Inputs or Outputs for PV/FV Calc

Answer 2

beginning or end?
3 of the 5 below
FV
PV
PMT
I/YR
N

Question 3

Ordinary Annuity Payments +/-

Answer 3

Positive: received in clients bank account
Key words: receives, deposits in bank account

negative: leaves clients bank account
key words: invests, pays down payment

Question 4

Real Rate of Return

Answer 4

1+ after tax return
{ ________________ - 1} X100

  1 + inflation rate

Question 5

When to use real rate of return?

Answer 5

when the question asks for “todays dollars”

Question 6

Unequal Cashflows: Calculate PV

Answer 6

-enter 0 as first CFj input
- if client receives money, CF positive
- if client invests money, CF negative
USE NPV BUTTON

Question 7

Unequal Cashflows: Calculate IRR (Dollar Weighted Return)

Answer 7

initial investment as negative input (CF0), don’t need to use NPV button

Question 8

Unequal Cashflows: Calculate NPV

Answer 8

input initial investment as nevative input (CF0), use i/YR button for rate and NPV

Question 9

NPV & IRR

Answer 9

NPV positive: irr > required return (make the investment, it will earn more than clients required rate of return)

NPV negative: irr < required return

= : irr = required return

Question 10

Serial Payments

Answer 10

client can achieve goals by making an inflation adjusted payment rather than nominal. conceptual topic.