TOMAS CLAUDIO COLLEGES

Taghangin, Morong, Rizal

COLLEGE OF BUSINESS ADMINISTRATION

BA 42 – Preliminary Examinations

NAME:_Marijo M. Juanillo_________________________
SCORE:___________________________
SECTION:__BSA - A_____________________ RATING:___________________________

PART I – MULTIPLE CHOICE (Instructions: Write the letter corresponding to the best answer
on the space provided for before each number.)

__A__1) The future value of $100 received today and deposited at 6 percent for four years is
closest to:
A) $126 B) $ 79 C) $124 D) $116
__B__2) The future value of $200 received today and deposited at 8 percent for three years is
approximately
A) $248 B) $252 C) $159 D) $253
__C__3) The present value of $100 to be received 10 years from today, assuming an
opportunity cost of 9 percent, is approximately
A) $237 B) $190 C) $42 D) $10
__D__4) The present value of $200 to be received 10 years from today, assuming an
opportunity cost of 10 percent, is approximately
A) $50 B) $400 C) $519 D) $77
____5) Your current income is $50,000 per year, and you would like to maintain your current
standard of living (i.e., your purchasing power) when you retire. If you expect to retire in 30
years and expect inflation to average 3% over the next 30 years, what amount of annual income
will you need to live at the same comfort level in 30 years?
A) $121,363 B) $95,000 C) $20,599 D) $51,500
__A__6) The present value of a $25,000 perpetuity at a 14 percent discount rate is
A) $178,571 B) $285,000 C) $350,000 D) $219,298
__B__7) The present value of a $20,000 perpetuity at a 7 percent discount rate is
A) $186,915 B) $285,714 C) $140,000 D) $325,000
__D__8) Bill plans to fund his individual retirement account (IRA) by contributing $2,000 at the
end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how
much will he have at the end of the twentieth year?
A) $19,293 B) $14,939 C) $40,000 D) $144,105
__C__9) Dan plans to fund his individual retirement account (IRA) by contributing $2,000 at the
end of each year for the next 10 years. If Dan can earn 10 percent on his contributions, how
much will he have at the end of the tenth year?
A) $12,289 B) $20,000 C) $31,875 D) $51,880
__B__10) The future value of a $2,000 annuity due deposited at 8 percent compounded
annually for each of the next 10 years is
A) $28,973 B) $31,291 C) $14,494 D) $13,420
__D__11) The future value of a $10,000 annuity due deposited at 12 percent compounded
annually for each of the next 5 years is
A) $36,050 B) $63,528 C) $40,376 D) $71,152
__B__12) The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at
3 percent, is
A) $11,808 B) $11,464 C) $8,530 D) $8,786
__A__13) The future value of an ordinary annuity of $2,000 each year for 10 years, deposited at
12 percent, is
A) $35,097 B) $12,656 C) $39,309 D) $11,300
__C__14) A college received a contribution to its endowment fund of $2 million. It can never
touch the principal, but can use the earnings. At an assumed interest rate of 9.5 percent, how
much can the college earn to help its operations each year?
A) $95,000 B) $19,000 C) $190,000 D) $18,000
__D__15) The present value of an ordinary annuity of $350 each year for five years, assuming
an opportunity cost of 4 percent, is
A) $1,620 B) $1,896 C) $1,971 D) $1,558
__D__16) The present value of an ordinary annuity of $2,350 each year for eight years,
assuming an opportunity cost of 11 percent, is
A) $30,935 B) $27,870 C) $13,424 D) $12,093
__B__17) A generous benefactor to a local ballet plans to make a one-time endowment that
would provide the ballet with $150,000 per year into perpetuity. The rate of interest is expected
to be 5 percent for all future time periods. How large must the endowment be?
A) $300,000 B) $3,000,000 C) $750,000 D) $1,428,571
__C__18) A generous philanthropist plans to make a one-time endowment to a renowned heart
research center which would provide the facility with $250,000 per year into perpetuity. The rate
of interest is expected to be 8 percent for all future time periods. How large must the
endowment be?
A) $2,314,814 B) $2,000,000 C) $3,125,000 D) $3,000,000
__B__19) Mary will receive $12,000 per year for the next 10 years as royalty for her work on a
finance book. What is the present value of her royalty income if the opportunity cost is 12
percent? Assume that payments come at the end of each year.
A) $235,855 B) $67,803 C) $210,585 D) $75,939
__D__20) To pay for her college education, Gina is saving $2,000 at the beginning of each year
for the next eight years in a bank account paying 12 percent interest. How much will Gina have
in that account at the end of 8th year?
A) $11,128 B) $9,935 C) $24,599 D) $27,551
__C__21) James plans to fund his individual retirement account, beginning today, with 20
annual deposits of $2,000. If he can earn an annual compound rate of 8 percent on his deposits,
the amount in the account 20 years from today will be
A) $19,636 B) $91,524 C) $98,846 D) $21,207
__B__22) You have been offered a project paying $300 at the beginning of each year for the
next 20 years. What is the maximum amount of money you would invest in this project if you
expect 9 percent rate of return to your investment?
A) $2,739 B) $2,985 C) $15,348 D) $16,729
____23) A charitable foundation has $500,000 invested in an account that earns 7%. The
foundation has promised to begin making annual payments to beneficiaries in one year, and the
first payment will be $25,000. The foundation has promised that future payments will grow at a
constant rate forever. At what rate can the foundation afford to increase payments assuming
that it makes no additional deposits into the account?
A) 0%; it can't afford to increase payments forever without adding more money to the account.
B) 1%
C) 2%
D) 3%
____24) How much money would you have to deposit today to create an income stream that
pays $10,000 one year from today and continues to make annual payments forever, with
payments after the first $10,000 growing at 4% per year? Assume money that you invest today
to fund this income stream earns a 7% rate of return.
A) $142,857 B) $250,000 C) $1,250,000 D) $333,333
__C__25) A certain investment promises to pay you $2,500 per year forever with the first
payment starting next year. If you can earn a 5% return on similar investments, what's the most
you would pay for this investment today?
A) $50,000 B) $5,000 C) $41,667 D) $62,500
=2,500/0.05
=50,000*0.9524(1+0.05/=)
=47,620
__C__26) A certain investment promises to pay you $2,500 per year forever with the first
payment starting 5 years from now. If you can earn a 5% return on similar investments, what's
the most you would pay for this investment today?
A) $50,000 B) $39,176 C) $41,135 D) $37,311
=50,000*0.8227(1+0.05/ 4=)
=41,135
__C__27 You receive $100 today, $200 in one year, and $300 in two years. If you deposit these
cash flows into an account earning 12 percent, the value in the account three years from now is
A) less than $600 B) $649 C) $727 D) $815
__D__28 You receive $1,200 today, $2,200 in one year, and $3,300 in two years. If you deposit
these cash flows in an account earning 12%, how much money is in the account three years
from now?
A) $6,221 B) $5,554 C) $7,269 D) $8,142
__B__29) Find the future value at the end of year 3 of the following stream of cash flows
received at the end of each year, assuming the firm can earn 17 percent on its investments.

A) $16,320 B) $20,127 C) $23,548 D) $27,551

__C__30) Find the future value at the end of year 3 of the following stream of cash flows
received at the end of each year, assuming the firm can earn 8 percent on its investments.

A) $51,780 B) $39,248 C) $47,944 D) $40,981

__B__31) You receive $1,000 in 1 year, $1,200 in 2 years, and $1,300 in 3 years. The present
value today of these future receipts is ________ if the opportunity cost is 7 percent.
A) $2,500 B) $3,044 C) $4,036 D) $3,257
__A__32) You will receive $100 in 1 year, $200 in 2 years, and $300 in 3 years. If you can earn
13% on your investments, the present value of these future receipts is
A) $453 B) $512 C) $801 D) $600
__D__33) Find the present value of the following stream of cash flows assuming an opportunity
cost of 14 percent.

A) $59,169 B) $92,443 C) $81,090 D) $51,903

__A__34) Find the present value of the following stream of cash flows assuming an opportunity
cost of 25 percent.

A) $27,168 B) $33,960 C) $72,656 D) $41,674

Answer: A
__D__35) Find the present value of the following stream of cash flows assuming an opportunity
cost of 9 percent.

A) $85,791 B) $187,838 C) $65,213 D) $79,345

__A__36) Find the present value of the following stream of a firm's cash flows, assuming that
the firm's opportunity cost is 14 percent.

A) $131,068 B) $149,417 C) $485,897 D) $104,322

__C__37) The future value of $200 received today and deposited at 8 percent compounded
semiannually for three years is
A) $380 B) $158 C) $253 D) $252
__B__38) The future value of $100 received today and deposited in an account for four years
paying semiannual interest of 6 percent is
A) $450 B) $127 C) $889 D) $134
__A__39) The future value of $200 received today and deposited for three years in an account
which pays semiannual interest of 8 percent is
A) $253.00 B) $252.00 C) $158.00 D) $134.66
__B__40) The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12
percent compounded quarterly is
A) $17,549 B) $75,401 C) $93,049 D) $11,200
__C__41) What is the highest effective rate attainable with a 12 percent nominal rate?
A) 12.00% B) 12.55% C) 12.75% D) 12.95%
__C__42) Gina has planned to start her college education four years from now. To pay for her
college education, she has decided to save $1,000 a quarter for the next four years in an
investment account paying 12 percent interest. How much will she have at the end of the fourth
year?
 A) $1,574 B) $19,116 C) $20,157 D) $16,000
__C__43) How much would Sophie have in her account at the end of 10 years if she deposit
$2,000 into the account today if she earned 8 percent interest and interest is compounded
continuously?
A) $4,317 B) $4,134 C) $4,451 D) $4,521