Module 3 - Quantitative Methods of Finance

Question 1

If Inflation is 4% in a certain country, and the cost of tuition grows 7% per year… You are seeking
to go into a business project that will earn enough to cover inflation and the cost of tuition. To
analyze whether to do, or not to do, the business project, you will select a discount rate, which
is the required rate of return. What should be your discount rate for Net Present Value
calculations.

Answer 1

More than 11%

Question 2

If an investor has P100 million, and he keeps his money in time deposits earning 1% a year..
while inflation is running at 4% per year.. How much is the investor’s money growing?

Answer 2

Negative 3 percent

Question 3

If an investor is faced with a choice of doing a business project costing a lot of effort, and it will
make his money grow 6% a year, what would you advise him. Assume that government bond
yields are 7%.

Answer 3

Invest in government bonds to earn 7%

Question 4

What is the purpose of calculating the net present value?

Answer 4

To find out if an investment can make money grow by at least “x” Percent. Where
“x” is the required return on investment.

Question 5

What is the purpose of calculating the Internal Rate of Return of a proposed investment.
a. To find out how much %, that the investment makes the investment money grow, over time,
year after year.

Answer 5

To find out how much %, that the investment makes the investment money grow,
over time, year after year

Question 6

What allows money to grow 15% a year, for the past 15 years..

Answer 6

Stocks: young second-liner companies that are growing fast. Top 30 companies only grow 8%
- 11% per year

Question 7

Which range of investment returns is closest to the Average Return on PhiL Peso Treasury
Bonds?

Answer 7

3% +/- 1%

Question 8

What is the average return on blue-chip stocks, over the past 33 years, expressed as a range of
% returns.

Answer 8

8% - 11%

Question 9

What happens to 50,000 pesos, invested to grow 15% a year, for 30 years? Select the option
that is nearest to the true answer

Answer 9

It reaches 3.3 million

Question 10

Answer this: what is the net present value of all these cashflows, assuming an investment of P50
million? Discount rate is 18%. The correct answer is closest to:

Answer 10

3.2