Multiple Choice (3.5 points each question) 1. Which of the following processes do we use when estimating the price of an asset? A. Compounding all expected future cash flows from the asset till the end of the Investment horizon. 8. Summing up all expected future cash flows from the asset. . Discounting all expected future cash flows from the asset to the present D. Averaging all expected future cash flows from the asset 2. Assume the interest rate is positive in the following years. Which of the following statements is correct? A. The later a future dollar will be received, the more it is worth today B. The more frequently the interest is compounded, the lower the PV of a dollar on a given future date. C. When the market interest rates fall, the prices of fixed income securities will also fall. D. The value of a dollar invested will grow over time but at a slower rate further into the future. 3. Which of the following will result in an increase in the future value of an investment? A. The length of the entire investment horizon is longer. B. The amount invested is smaller C. The annual rate of interest is lower. D. The duration between compounding periods is longer 4. The present value of an annuity can be used when analyzing: A. Amortized loan B. A future saving goal. C. The price of a common stock. D. The price of a preferred stock 5. Which of the following statements is NOT correct? A. If Down Jones Industrial Average went down 5% and then up 5% next day, the index will be lower than the original level B. If your income doubles in five years, the average yearly income growth rate is 100%/5, thus 20%. C. Firm A's sales grow by 20% each year, while firm B's sales grow by 10% every 6 months. It will be faster for firm B to double its sales . Stock X and Stock Y traded at the same price two days before. Then X gained 5% and then lost 5% ext day, while Y lost 5% and then gained 5% next day. Their prices would still be the same after the ays. 1