Mid.

Term_ PERFORMANCE ASSESSMENT 1_TIME VALUE OF MONEY

Multiple Choice Questions Problem Solving (100 points)

Instructions:
1. Identify the choice that best completes the statement or answers the question.
2. Summarize your answers in the answer sheet form provided with this questionnaire.
3. Submit your summarized answers in the answer sheet by uploading it in pdf format on the designated drop box
and encoding the same answers in the google form uploaded in BIG Sky under Module 2: Recorded Lecture and
Assessment Section.

1. As a young graduate, you have plans on buying your dream car in three years. You believe the car will cost
P50,000. You have two sources of money to reach your goal of P50,000. First, you will save money for the next
three years in a money market fund that will return 8% annually. You plan on making P5,000 annual payments to
this fund. You will make yearly investments at the BEGINNING of the year. The second source of money will be
a car loan that you will take out on the day you buy the car. You anticipate the car dealer to offer you a 6% APR
loan with monthly compounding for a term of 60 months. To buy your dream car, what monthly car payment will
you anticipate?
a. P483.99
b. P540.15
c. P627.73
d. P652.83
2. A P100 investment yields P112.55 in one year. The interest on the investment was compounded quarterly. From
this information, what was the stated rate or APR of the investment?
a. 12.55%
b. 12.25%
c. 12.15%
d. 12.00%
3. If you invest P5,000 in a mutual fund with a total annual return (interest rate) of 8% and you re-invest the
proceeds each year, what will be the value of your investment after five years?
a. P3,402.92
b. P6,597.08
c. P7,000.00
d. P7,346.64
4. Your firm is evaluating a project that should generate revenue of P4,600 in year 1, P5,200 in year two, P5,900 in
year three, and P5,700 in year four. The firm receives each cash flow at the end of each year. If your firm's
required return is 12%, what is the future value of these cash flows at the end of year four?
a. P16,074.51
b. P22,583.53
c. P25,293.55
d. P28,328.77
5. You would like to retire with P1 million on your 60th birthday. If you start saving equal annual amounts on your
26th birthday, make your last deposit on your 60th birthday, and earn 10% interest on your money, how much
must you invest each year to achieve your goal?
a. P3,343.06
b. P3,436.14
c. P3,558.41
d. P3,689.71
6. A report from the marketing department indicates that a new product will generate the following revenue stream:
P62,500 in the first year, P89,400 in year two, P136,200 in year three, P128,300 in year four, and P112,000 in
year five. If your firm's discount rate is 11% and the cash flows are received at the end of each year, what is the
present value of this cash flow stream?
a. P379,435.35
b. P421,173.24
c. P476,036.04
d. P528,400.00
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 7. Great Lakes Christmas Tree Co. expects to pay an annual dividend of P2 per share in perpetuity on its preferred
shares starting one year from now. The firm is committed solely to its steady North American Christmas tree
business (as opposed to, say, diversifying into landscape shrubbery). This profile warrants a required return of
6%. What is the present value of this dividend stream for investors?
a. P12.00
b. P1.89
c. P33.33
d. P2.12
8. If you invest P2,500 in a bank account that pays 6% interest compounded quarterly, how much will you have in
five years?
a. P2,546.96
b. P3,367.14
c. P8,017.84
d. P13,267.04
9. Calculate the annual payment for a 20-year mortgage on a P3.5 million building at a 7.5% interest rate. Assume
that the entire building is financed and that payments are made at the end of each year, starting at the end of the
first year and ending at the end of the 20th year.
a. P175,000.00
b. P343,322.67
c. P186,293.52
d. P340,815.32
10. You decide that your family would be comfortable living on an annual income of P150,000, growing at 4% per
year. You’d also like to continue generating this cash flow for your descendents, forever. With investment returns
of 8%, how much wealth would you need today to provide this income starting with P150,000 one year from
now?
a. P1,250,000
b. P1,875,000
c. P1,904,218
d. P3,750,000
11. A stainless steel products manufacturer with an 8.5% cost of capital receives a P3,000,000 order, payable at the
end of three years. What is the annual payment amount made at the end of each year with the equivalent present
value?
a. P660,864
b. P919,618
c. P949,473
d. P997,785
12. If you deposit P10,000 today in an account that pays 5% interest compounded annually for five years, how much
interest will you earn?
a. P2,500.00
b. P2,762.82
c. P3,400.96
d. P12,762.82
13. Herbilux Botanicals forecasts the following cash flows at the end of each year for a project. If the firm's discount
rate is 9%, what is the present value of the project?

Year Cash flow

1 P 697,000
2 P 631,000
3 P 574,000
4 P 898,000
5 P9,981,000

a. P7,634,980
b. P8,015,517
c. P8,736,914
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d. P12,268,998
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14. Mayfield Development, LLC forecasts the following cash flows at the beginning of each year for a project. If the
firm's discount rate is 9%, what is the present value of the project?

Year Cash flow

1 P 697,000
2 P 631,000
3 P 574,000
4 P 898,000
5 P9,981,000

a. P7,634,980
b. P8,736,914
c. P9,523,236
d. P12,268,998
15. A financial advisor recommends saving P1,000,000 for a comfortable retirement. With investment returns of 8%,
what is the annual year-end cash flow generated by the P1 million for 25 years, assuming you spend all of the
principal and interest?
a. P80,000
b. P86,740
c. P93,679
d. P94,978
16. A few years after graduating from college, you decide to get an MBA. This endeavor sets you back P100,000 in
loans. Luckily, you have the option to consolidate these loans at 5%. You opt for a 30-year payback period with
monthly installments due at the end of each month. What is the monthly payment on the consolidated loan?
a. P536.82
b. P542.10
c. P544.86
d. P3,552.94
17. Prudent Policy Life Insurance Co. offers a 10-year term life insurance policy with a P250,000 benefit and annual
premiums of P200, paid at the beginning of each year. If Prudent can earn 8% on invested capital, what is the
present value to the firm of the premiums from one policy, assuming the policy holder outlives the policy term?
a. P1,120
b. P1,342
c. P1,449
d. P1,852
18. You are evaluating a perpetuity. The first payment is P100, and it arrives in one year. Each subsequent annual
payment will increase by 10%. If the discount rate is 8%, what is the present value of this perpetuity?
a. P5,500
b. P1,000
c. P1,250
d. The present value is infinite
19. If a bank lends you P10,000 and requires that you make payments of P2,500 at the end of each of the next five
years, what interest rate is the bank charging?
a. 4.56%
b. 5.61%
c. 7.93%
d. 11.18%
20. You wish to save P2,500,000 for your retirement by saving a certain sum every month for the next 40 years. If
you can earn 9% compounded monthly, and you make your deposits at the beginning of each month, how much
would you have to deposit each month to achieve your objective?
a. P616.59
b. P534.04
c. P565.67
d. P530.06
e. None of the above
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MT PERFORMANCE ASSESSMENT 1_TIME VALUE OF MONEY
Answer Section/Form/Sheet

NAME: _______________________________________________ DATE TAKEN: ____________

COURSE/YEAR/SECTION: _____________________________ SCORE/RATING: __________

ANSWER SUMMARY:
01. 11.
02. 12.
03. 13.
04. 14.
05. 15.
06. 16.
07. 17.
08. 18.
09. 19.
10 20.

Supporting Computation if there is any:

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