#1
What is compound interest?
Interest calculated on both the initial principal and the accumulated interest
ExplanationInterest on principal and interest.
#2
What does ROI stand for in finance?
Return on Investment
ExplanationMeasure of profitability.
#3
What is the difference between simple interest and compound interest?
Simple interest is calculated on the initial principal amount, while compound interest is calculated on both the principal amount and the accumulated interest.
ExplanationPrincipal only vs. Principal and interest.
#4
What is the time value of money (TVM)?
The concept that a dollar today is worth more than a dollar in the future
ExplanationValue of money over time.
#5
What is the formula for calculating simple interest?
A = Prt
ExplanationBasic interest formula.
#6
What is the future value of an investment if $1000 is invested at an annual interest rate of 5% compounded annually for 5 years?
$1276.28
ExplanationCompound interest future value calculation.
#7
What is the formula to calculate the annual percentage rate (APR)?
APR = (Interest / Principal) * 100 * n
ExplanationRate of interest per year.
#8
What is the formula for the future value of an annuity?
FV = P * r * (1 + r)^t
ExplanationFuture value of a series of payments.
#9
What is the rule of 72 used for in finance?
To estimate the number of years for an investment to double at a given interest rate
ExplanationApproximating doubling time.
#10
What is the present value of $5000 to be received after 3 years at an annual discount rate of 8%?
$4133.02
ExplanationDiscounting future value to present.
#11
What is the formula to calculate the net present value (NPV) of an investment?
NPV = (Cash flows / (1 + r)^t) - Initial investment
ExplanationPresent value of cash flows minus initial investment.
#12
Which of the following is NOT a component of the Black-Scholes option pricing model?
Interest rate
ExplanationExclusion from the model.
#13
What is the Sharpe ratio used for in finance?
To measure the risk-adjusted return of an investment
ExplanationRisk versus return comparison.
#14
What is the formula for calculating the weighted average cost of capital (WACC)?
WACC = (E/V * Re) + (D/V * Rd * (1 - Tc))
ExplanationAverage cost of capital.