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Questions and Answers
What type of financial institutions offer bank-like services but cannot accept deposits due to the absence of a banking license?
What type of financial institutions offer bank-like services but cannot accept deposits due to the absence of a banking license?
Which of the following is NOT an example of a bank institution?
Which of the following is NOT an example of a bank institution?
What type of financial institutions typically offer small credits to individuals or businesses?
What type of financial institutions typically offer small credits to individuals or businesses?
Which financial institutions accept deposits from or offer loans to individuals or entities?
Which financial institutions accept deposits from or offer loans to individuals or entities?
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What type of financial institutions offer quick cash loans or 'sanla'?
What type of financial institutions offer quick cash loans or 'sanla'?
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What is the primary function of capital budgeting in a business?
What is the primary function of capital budgeting in a business?
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What is the initial investment required for Project A?
What is the initial investment required for Project A?
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What is the expected annual cash return for Project B?
What is the expected annual cash return for Project B?
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What is the cost of capital used in computing the net present value of the projects?
What is the cost of capital used in computing the net present value of the projects?
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What is the formula for simple interest?
What is the formula for simple interest?
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What is the future value of the investment if you invested ₱ 30,000 for three years at 5% simple interest rate?
What is the future value of the investment if you invested ₱ 30,000 for three years at 5% simple interest rate?
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What type of interest is computed by multiplying together the principal, rate, and time?
What type of interest is computed by multiplying together the principal, rate, and time?
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What type of investment risk is demonstrated when an investment's value decreases due to a change in market conditions?
What type of investment risk is demonstrated when an investment's value decreases due to a change in market conditions?
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What type of investment risk is demonstrated when an investor is unable to sell an investment quickly enough or at a favorable price?
What type of investment risk is demonstrated when an investor is unable to sell an investment quickly enough or at a favorable price?
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What type of investment risk is demonstrated when the purchasing power of an investment's returns is reduced due to inflation?
What type of investment risk is demonstrated when the purchasing power of an investment's returns is reduced due to inflation?
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What type of investment risk is demonstrated when an investment's returns are lower than expected, causing a shortfall?
What type of investment risk is demonstrated when an investment's returns are lower than expected, causing a shortfall?
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What type of investment risk is demonstrated when a portfolio is not diversified and heavily invested in a single asset?
What type of investment risk is demonstrated when a portfolio is not diversified and heavily invested in a single asset?
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What is the future value (FV) of an investment of ₱30,000 for three years at a 5% simple interest rate?
What is the future value (FV) of an investment of ₱30,000 for three years at a 5% simple interest rate?
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What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 7%?
What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 7%?
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What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 8%?
What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 8%?
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Which project should XYZ Corporation accept?
Which project should XYZ Corporation accept?
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What is the net present value of Project A using the PVIFA table, if the cost of capital is 7%?
What is the net present value of Project A using the PVIFA table, if the cost of capital is 7%?
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What is the correct order in capital budgeting process?
What is the correct order in capital budgeting process?
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What is the annual cash return of Project A?
What is the annual cash return of Project A?
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What is the future value of ₱ 30,000 invested for three years at a compound interest rate of 5%?
What is the future value of ₱ 30,000 invested for three years at a compound interest rate of 5%?
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Which bank should you invest your ₱ 7,000.00 with to earn a higher interest?
Which bank should you invest your ₱ 7,000.00 with to earn a higher interest?
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What type of interest is calculated by multiplying the principal, rate, and time?
What type of interest is calculated by multiplying the principal, rate, and time?
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What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 7%?
What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 7%?
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What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 8%?
What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 8%?
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What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 9%?
What is the present value of an annuity of ₱ 15,000.00 at the end of 10 years converted annually at 9%?
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Study Notes
Financial Institutions
- Non-banking institutions offer bank-like services but cannot accept deposits due to the absence of a banking license.
- Examples of non-banking institutions include pawnshops, microloan organizations, and insurance companies.
Bank Institutions
- Bank institutions accept deposits from or offer loans to individuals or entities.
- Examples of bank institutions include Banco De Oro (BDO), Bank of the Philippine Islands (BPI), and Land Bank of the Philippines.
Lending Institutions
- Microloan organizations and pawnshops are lending institutions that usually offer small credit to individuals or businesses.
- Pawnshops offer quick cash loans or "sanla".
Capital Budgeting
- Capital budgeting is the process that a business uses in evaluating and selecting major projects or investments.
- The payback method evaluates a project by measuring the time (usually in years) it will take to recover the initial investment.
- Independent projects compete with one another, and the approval of one eliminates the other projects.
Project Evaluation
- The payback period of a project can be calculated using the initial investment and expected annual cash returns.
- The net present value (NPV) of a project can be calculated using the PVIFA table and the cost of capital.
Investment Risk
- Market risk occurs when businesses are economically affected by external factors, such as a pandemic.
- Inflation risk occurs when the value of an investment decreases due to inflation.
- Credit risk occurs when an investment does not meet its expected return, such as a government bond.
- Liquidity risk occurs when an investment cannot be easily sold or converted to cash.
- Concentration risk occurs when an investment portfolio is not diversified, such as when one investment makes up a large portion of the portfolio.
Simple and Compound Interest
- Simple interest is computed by multiplying the principal, rate, and time.
- Compound interest is computed by multiplying the principal, rate, and time, with the interest compounded over time.
Capital Budgeting Process
- The capital budgeting process involves decision-making, monitoring, and reviewing investment proposals.
- The correct order of the capital budgeting process is: implementation, review and analysis of the proposal, decision-making, and monitoring.
Present Value of Annuity
- The present value of an annuity can be calculated using the PVIFA table.
- The present value of an annuity depends on the annual cash return, number of years, and interest rate.
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Description
Test your understanding of business finance concepts with this unit test featuring multiple-choice questions on financial institutions and services.
