IC28 Mock Test Sample 16

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Q1. The effective rate of discount per period of $1/m$th of a year is:

a) $d^{(m)}$
b) $d^{(m)}/m$
c) $d/m$
d) $1-d^{(m)}$

Q2. The present value of 1 payable at the end of $1/m$th of a year is:

a) $1-d^{(m)}/m$
b) $1/(1+d^{(m)}/m)$
c) $(1-d^{(m)})^{1/m}$
d) $1-d^{(m)}$

Q3. The present value of 1 payable at the end of one year is:

a) $(1-d^{(m)}/m)^m$
b) $1-d^{(m)}$
c) $(1+d^{(m)})^{-1}$
d) $(1-d/m)^m$

Q4. Per relation (5.1), the effective rate of discount $d$ is:

a) $d = 1-(1-d^{(m)}/m)^m$
b) $d = d^{(m)}/m$
c) $d=(1+d^{(m)})^m-1$
d) $d=m \cdot d^{(m)}$

Q5. Per relation (5.2), $d^{(m)}$ in terms of effective $d$ is:

a) $d^{(m)} = m[1-(1-d)^{1/m}]$
b) $d^{(m)} = m \cdot d$
c) $d^{(m)}=(1-d)^m$
d) $d^{(m)}=1-(1-d)^m$

Q6. Since $1-d=v$, relation (5.3) gives:

a) $m(1-v^{1/m})$
b) $1-v^m$
c) $mv^{1/m}$
d) $mv$

Q7. Per relation (5.4), the relationship between $d^{(m)}$ and $i^{(m)}$ is:

a) $d^{(m)}=\frac{i^{(m)}}{1+i^{(m)}/m}$
b) $d^{(m)}=i^{(m)}$
c) $d^{(m)}=1/i^{(m)}$
d) $d^{(m)}=i^{(m)}-m$

Q8. Per relation (5.5), $i^{(m)}$ in terms of $d^{(m)}$ is:

a) $i^{(m)}=\frac{d^{(m)}}{1-d^{(m)}/m}$
b) $i^{(m)}=d^{(m)}$
c) $i^{(m)}=m \cdot d^{(m)}$
d) $(1+d^{(m)}/m)^m$

Q9. Per relation (5.6), $i^{(m)}-d^{(m)}$ equals:

a) $\frac{i^{(m)}d^{(m)}}{m}$
b) $id$
c) 0
d) $1/m$

Q10. Accumulated value of 1 at effective interest rate $i$ for n years is:

a) $(1+i)^n$
b) $v^n$
c) $(1-d)^n$
d) $1+ni$

Q11. Accumulated value of 1 at effective discount rate $d$ is:

a) $(1-d)^{-n}$
b) $(1+d)^n$
c) $v^n$
d) $1-nd$

Q12. Present value of 1 due at end of n years at effective discount $d$ is:

a) $(1-d)^n$
b) $(1-d)^{-n}$
c) $1+nd$
d) $v^n$

Q13. Accumulated value at nominal rate $i^{(m)}$ over n years equals:

a) $(1+i^{(m)}/m)^{mn}$
b) $(1+i^{(m)})^n$
c) $(1-i^{(m)}/m)^{mn}$
d) $1+ni^{(m)}$

Q14. Present value at nominal discount rate $d^{(m)}$ over n years is:

a) $(1-d^{(m)}/m)^{mn}$
b) $(1+d^{(m)}/m)^{-mn}$
c) $(1-d^{(m)})^n$
d) $1-nd^{(m)}$

Q15. In Example 1, the nominal discount rate $d^{(4)}$ is approximately:

a) 0.10
b) 0.36364 or 36.36%
c) 0.40
d) 0.42

Q16. In Example 2(a), equivalent effective discount rate $d$ is:

a) 12%
b) 11.47%
c) 12.96%
d) 10%

Q17. In Example 2(a), the corresponding effective interest rate $i$ is:

a) 12%
b) 12.96%
c) 11.47%
d) 10%

Q18. In Example 2(b), the effective rate of discount $d$ is:

a) 12%
b) 11.64%
c) 11.47%
d) 13.17%

Q19. Banker’s discount on shorter bills realizes:

a) Higher effective rate
b) Lower effective rate
c) Same rate
d) Cannot say

Q20. In Example 3, present value of Rs. 1000 due at end of 15 years is approximately:

a) Rs. 200
b) Rs. 293.86
c) Rs. 350
d) Rs. 400

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