#1
What is the time value of money (TVM) concept?
It refers to the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
ExplanationMoney now is worth more than the same amount in the future due to earning potential.
#2
Which of the following is an example of an annuity?
Monthly payments for a car loan
ExplanationRegular payments over time, like a car loan.
#3
What is the present value (PV) of a future cash flow?
The amount of money that needs to be invested now to yield a specified future amount of money.
ExplanationThe current worth of future cash.
#4
Which of the following is NOT a component of the time value of money (TVM)?
Profit margin
ExplanationNot related to time value.
#5
What does the term 'opportunity cost' mean in finance?
The cost of choosing one alternative over another.
ExplanationCost of choosing one option over another.
#6
Which of the following statements is true about bonds?
Bonds are issued by governments and corporations to raise capital.
ExplanationBonds as capital-raising tools.
#7
What does the term 'discount rate' refer to in the context of financial analysis?
The interest rate at which future cash flows are discounted to their present value.
ExplanationRate for converting future cash to present value.
#8
What does NPV stand for in investment analysis?
Net Present Value
ExplanationThe current value of future cash flows.
#9
Which of the following statements about the Internal Rate of Return (IRR) is true?
IRR is the discount rate at which the net present value (NPV) of a project equals zero.
ExplanationThe rate where project's NPV is zero.
#10
What is the Payback Period in investment analysis?
The duration it takes to recover the initial cost of an investment.
ExplanationTime taken to recoup investment.
#11
What is the Capital Asset Pricing Model (CAPM) used for?
To estimate the expected return of an asset based on its risk.
ExplanationEstimating returns based on risk.
#12
What is the primary purpose of calculating the Internal Rate of Return (IRR) for an investment project?
To compare the profitability of different investment projects.
ExplanationComparing profitability of projects.
#13
What is the formula to calculate the Net Present Value (NPV) of an investment?
NPV = Σ (Cash flows / (1 + r)^n)
ExplanationTotal present value of cash flows.
#14
What is the primary advantage of using the Payback Period method for investment evaluation?
It provides a simple measure of liquidity.
ExplanationSimple measure of liquidity.
#15
What is the formula to calculate the future value (FV) of an investment?
FV = PV * (1 + r)^n
ExplanationFuture value equals present value compounded over time.
#16
Which of the following is true about the concept of diversification in investment?
It involves spreading investments across different assets to reduce risk.
ExplanationSpreading investments to lower risk.
#17
What is the role of risk-adjusted return measures such as the Sharpe Ratio in investment analysis?
To measure the return of an investment relative to its volatility.
ExplanationMeasuring return relative to volatility.
#18
What is the concept of 'beta' in finance?
A measure of the volatility of a security or portfolio relative to the market as a whole.
ExplanationVolatility relative to market.
#19
What is the main limitation of the Net Present Value (NPV) method in investment analysis?
It does not consider all cash flows over the project's life.
ExplanationLimited to immediate cash flows.