Podcast
Questions and Answers
Which of the following scenarios best illustrates the concept of 'present value' in financial decision-making?
Which of the following scenarios best illustrates the concept of 'present value' in financial decision-making?
- Determining how much money needs to be invested today to have \$10,000 in five years, considering a specific interest rate. (correct)
- Assessing the historical performance of a stock portfolio over the past decade.
- Investing \$1,000 today and expecting it to grow to \$1,500 in five years.
- Calculating the future amount needed to cover college tuition expenses in 10 years.
A company is considering two investment opportunities: Project A, which requires an initial investment of $50,000 and is expected to yield $15,000 annually for the next 5 years, and Project B, which requires an initial investment of $75,000 and is expected to yield $20,000 annually for the next 5 years. Assuming a discount rate of 8%, which project has a higher net present value (NPV)?
A company is considering two investment opportunities: Project A, which requires an initial investment of $50,000 and is expected to yield $15,000 annually for the next 5 years, and Project B, which requires an initial investment of $75,000 and is expected to yield $20,000 annually for the next 5 years. Assuming a discount rate of 8%, which project has a higher net present value (NPV)?
- Project A has a higher NPV.
- It cannot be determined without knowing the future value of the investments.
- Both projects have the same NPV.
- Project B has a higher NPV. (correct)
What is the primary difference between simple interest and compound interest?
What is the primary difference between simple interest and compound interest?
- Simple interest is paid annually, while compound interest is paid monthly.
- Simple interest is calculated on the principal amount only, while compound interest is calculated on the principal plus accumulated interest. (correct)
- Simple interest rates are fixed, while compound interest rates are variable.
- Simple interest is used for short-term loans, while compound interest is used for long-term investments.
An investor deposits $5,000 into an account that earns 6% interest compounded annually. After 3 years, the investor withdraws $2,000. How much will be in the account at the end of year 5?
An investor deposits $5,000 into an account that earns 6% interest compounded annually. After 3 years, the investor withdraws $2,000. How much will be in the account at the end of year 5?
Which of the following is a key characteristic of an annuity due?
Which of the following is a key characteristic of an annuity due?
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