1.

A series of equal payments at fixed intervals for a specified number of periods is called
ANNUITY.
2. The contracted (or quoted or stated) interest rate is called Nominal Interest Rate.
3. 3. What is the process of finding the present value of cash flow or a series of cash flows
Discounting.
4. This is an annuity whose payment occur at the beginning of each period. Annuity Due
5. This is an annuity whose payment occur at the end of each period. Ordinary Due

6. Which of the following investments would have the highest future value at the end of 10 years?
Assume that the effective annual rate for all investments is the same and is greater than zero.
  a. Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10
payments).
  b. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20
payments).
  c. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total
of 20 payments).
  d. Investment D pays $2,500 at the end of 10 years (just one payment).
  e. Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).
7. Which of the following investments would have the lowest present value? Assume that the
effective annual rate for all investments is the same and is greater than zero.
  a. Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).
  b. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20
payments).
  c. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total
of 20 payments).
  d. Investment D pays $2,500 at the end of 10 years (just one payment).
  e. Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10
payments).
8. Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly.
Which of the following statements is CORRECT?
  a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.
  b. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.
  c. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.
  d. The periodic rate of interest is 3% and the effective rate of interest is 6%.
  e. The periodic rate of interest is 6% and the effective rate of interest is also 6%.
9. The new BSP logo, the three stars represent the three pillars of central banking
Price stability, financial stability and a safe & reliable payment system
10. Refers to the financial Activity that distributes the surplus funds of a sector in an economy that
has a need for it. Financial Intermediation
11. Gold, Silver, Salt, Cigarettes, Sea shells and marbles are examples of Commodity Money.
12. High current and quick ratios always indicate that firm is managing its liquidity position well.
FALSE
13. The inventory turnover ratio and day sales outstanding (DSO) are two ratios that are used to
assess how effectively a firm is managing its assets. TRUE
14. The TIE ratio is one, but not the only indication of a firm’s ability to meet its long-term and
short-term debt obligations. TRUE
 15. Profitability ratios show the combined effects of liquidity, asset management and debt
management on operating results. TRUE
16. This market is for commodities such as oil, gold and silver. Commodities Market
17. This market is for foreign currencies. Foreign Currency Market
18. This market is for short-term securities and usually occurs between banks and other financial
institution where they lend each other on an overnight basis. Money Market
19. To protect against counterfeiting, a thin ribbon is entrenched across the note’s paper. This
security market is called Security Thread.
20. This act sets the constitutional provision for the creation of the BSP. RA 7653
21. The following are building blocks of financial system except:
a. Money
b. Financial instrument
c. Financial institution
d. Central bank

22. Suppose you have $1,500 and plan to purchase a 5-year certificate of deposit (CD) that pays 3.5%
interest, compounded annually. How much will you have when the CD matures?
  a. $1,781.53
  b. $1,870.61
  c. $1,964.14
  d. $2,062.34
  e. $2,165.46
23. Suppose you have $2,000 and plan to purchase a 10-year certificate of deposit (CD) that pays
6.5% interest, compounded annually. How much will you have when the CD matures?
  a. $3,754.27
  b. $3,941.99
  c. $4,139.09
  d. $4,346.04
  e. $4,563.34
24. Last year Rocco Corporation's sales were $225 million. If sales grow at 6% per year, how large
(in millions) will they be 5 years later?
  a. $271.74
  b. $286.05
  c. $301.10
  d. $316.16
  e. $331.96
25. How much would $5,000 due in 25 years be worth today if the discount rate were 5.5%?
  a. $1,067.95
  b. $1,124.16
  c. $1,183.33
  d. $1,245.61
  e. $1,311.17
26. Suppose a U.S. treasury bond will pay $2,500 five years from now. If the going interest rate on 5-
year treasury bonds is 4.25%, how much is the bond worth today?
  a. $1,928.78
  b. $2,030.30
  c. $2,131.81
  d. $2,238.40
  e. $2,350.32
27. Suppose the U.S. Treasury offers to sell you a bond for $747.25. No payments will be made until
the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest
rate would you earn if you bought this bond at the offer price?
  a. 4.37%
  b. 4.86%
  c. 5.40%
  d. 6.00%
  e. 6.60%

28. Ten years ago, Lucas Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the
growth rate in earnings per share (EPS) over the 10-year period?
  a. 15.17%
  b. 15.97%
  c. 16.77%
  d. 17.61%
  e. 18.49%

29. Bob has $2,500 invested in a bank that pays 4% annually. How long will it take for his funds to
double?
  a. 14.39
  b. 15.15
  c. 15.95
  d. 16.79
  e. 17.67
30. You want to quit your job and go back to school for a law degree 4 years from now, and you plan
to save $3,500 per year, beginning immediately. You will make 4 deposits in an account that pays
5.7% interest. Under these assumptions, how much will you have 4 years from today?
  a. $16,112
  b. $16,918
  c. $17,763
  d. $18,652
  e. $19,584
31. You want to buy a new sports car 3 years from now, and you plan to save $4,200 per year,
beginning one year from today. You will deposit your savings in an account that pays 5.2%
interest. How much will you have just after you make the 3rd deposit, 3 years from now?
  a. $11,973
  b. $12,603
  c. $13,267
  d. $13,930
  e. $14,626
32. You want to buy a new ski boat 2 years from now, and you plan to save $8,200 per year,
beginning one year from today. You will deposit your savings in an account that pays 6.2%
interest. How much will you have just after you make the 2nd deposit, 2 years from now?
  a. $15,260
  b. $16,063
  c. $16,908
  d. $17,754
  e. $18,642

33. Your father is about to retire, and he wants to buy an annuity that will provide him with $85,000
of income a year for 25 years, with the first payment coming immediately. The going rate on such
annuities is 5.15%. How much would it cost him to buy the annuity today?
  a. $1,063,968
  b. $1,119,966
  c. $1,178,912
  d. $1,240,960
  e. $1,303,008
34. You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually.
How much will your account be worth at the end of 25 years?
  a. $2,245.08
  b. $2,363.24
  c. $2,481.41
  d. $2,605.48
  e. $2,735.75
35. Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a 20-year
annuity of $1,050,000, with the first payment coming one year from today. rate of return is built
into the annuity?
  a. 3.44%
  b. 3.79%
  c. 4.17%
  d. 4.58%
  e. 5.04%