D367 Innovation in Finance - Set 2 - Part 1

Test your knowledge of technical writing concepts with these practice questions. Each question includes detailed explanations to help you understand the correct answers.

Question 1: What is the time value of money (TVM)?

The concept that money received today is worth more than the same amount received in the future

The idea that future money is worth more than present money

The theory that inflation does not affect the value of money

The belief that money remains constant in value over time

Question 2: What is an annuity?

A lump-sum payment made at the start of a project

A series of equal payments made at regular intervals

A payment received after the investment matures

A single one-time payment

Question 3: What is the internal rate of return (IRR)?

The cost of capital for a firm

The rate at which the NPV of a project equals zero

The expected return on an investment

The percentage of net income paid out as dividends

Question 4: What is a perpetuity?

A bond that pays interest indefinitely

A stream of identical cash flows that continues forever

A series of payments that increase over time

A type of bond with no maturity date

Question 5: What does NPV stand for in finance?

Net Payment Value

Net Present Value

Nominal Percentage Value

Non-Perpetual Value

Question 6: What is compounding?

Finding a present value given a future value

Earning interest on the initial principal and on the interest previously earned

Calculating the value of a single investment

Borrowing funds to reinvest in another project

Question 7: Which formula is used to calculate the future value (FV) of a lump sum?

FV = PV / (1 + r)^n

FV = (PV + r)^n

FV = PV × (1 - r)^n

Question 8: What is the formula to calculate present value (PV)?

PV = FV × (1 + r)^n

PV = FV / (1 + r)^n

PV = (FV + r)^n

PV = FV × (1 - r)^n

Question 9: What is a bond’s maturity date?

The date on which the bond expires and the principal is repaid

The date when interest payments begin

The date on which the bond price reaches its peak

Question 10: What is an initial public offering (IPO)?

A company's first sale of bonds

The first time a privately-owned company offers shares to the public

The issuance of preferred stock

A loan made by a company to the public

Question 11: What is the cost of capital?

The cost associated with producing goods

The cost a company must pay for using investors' funds

The cost of acquiring inventory

The interest paid on short-term loans

Question 12: What is diversification?

Investing all funds into a single asset

Spreading investments across different asset classes to reduce risk

Focusing investments in a specific sector

Reinvesting all dividends earned from an investment

Question 13: What is systematic risk?

The risk associated with a specific company

Risk that affects the entire market and cannot be diversified away

Risk that can be avoided by diversification

The risk of a company going bankrupt

Question 14: What is the dividend discount model (DDM)?

A method of calculating the expected return of a bond

A way to determine the value of a stock based on future dividend payments

A strategy for increasing dividends paid to shareholders

A formula to calculate the present value of bond interest payments

Question 15: What is the payback period?

The time required to earn back the initial investment from a project’s cash flows

The time a bond takes to mature

The duration of time before dividends are paid out

The period in which a loan must be repaid

Question 16: What is the Gordon Growth Model used for?

To calculate the value of a bond

To estimate the value of a stock based on its future dividends

To determine the rate of return on an investment

To assess the growth rate of the overall economy

Question 17: What does the debt-to-equity ratio measure?

The proportion of a company's earnings paid out as dividends

The amount of debt a company uses to finance its operations compared to equity

The percentage of a company’s revenue spent on debt repayment

The ratio of short-term debt to long-term debt

Question 18: What is the definition of liquidity?

The ability to turn assets into cash quickly without losing significant value

The availability of a loan from a bank

The amount of cash a company has on hand

The capacity to repay long-term debt

Question 19: What is the purpose of a balance sheet?

To show a company’s revenues and expenses

To report a company’s financial position at a specific point in time

To summarize a company’s cash flow over a period

To calculate a company's earnings per share

Question 20: What is a current ratio?

A profitability ratio

A ratio used to assess a firm's long-term debt obligations

A liquidity ratio that measures a company’s ability to cover short-term liabilities with its current assets

A ratio that measures how well a company manages its fixed assets

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