0.10 Chapter Zero Review Questions

Review Questions: Chapter Zero

In all the following chapters’ study questions and problem sets, see if you can supplement the given questions with your own. Answer the given questions expansively.

  1. Define Free Cash Flow.
  2. What is Free Cash Flow used for?
  3. You are given the following data. Calculate the simple Present Value:
    • Future Value = $110
    • Number of Years = 10
    • Compounding Periods = Quarterly
    • Compound Rate = 12%
  4. Solve for the following:
    • Present Value = $750
    • Number of Years = 10
    • Discount Periods = Quarterly
    • Discount Rate = 12%
    • Future Value = ?
  5. What is the Future Value of a Perpetuity?
  6. What is the Present Value of a $125 Perpetuity, compounded quarterly, at an 8% annual rate?
  7. What if that Perpetuity grew at an annual rate of 4%?
  8. What are both the present- and future-values of a $663 ordinary annuity, given the following:
    • Rate = 8%
    • Years = 10
    • Frequency = Yearly
  9. You just took out a $240,000 mortgage for ten years, with annual payments, and an annual rate of 5%. What is your annual payment obligation? Assume the payments are due at the end of the year.
  10. How much interest will you have paid over the life of the mortgage as compared with the principal?
  11. In general, mortgage interest payments go up/down, while principal payments go up/down. Which are the right (italicized) choices?
  12. Why take out a longer-term mortgage when you can afford a shorter-term one with a higher payment?



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