IMANET CMA Exam - Topic 1 Question 109 Discussion

Actual exam question for IMANET's CMA exam

Question #: 109
Topic #: 1

[All CMA Questions]

The discount rate ordinal' used in present value calculations is the

AFederal Reserve rate

BTreasury bill rate.

CMinimum desired rate of return set by the firm.

DPrime rate.

Show Suggested Answer

Suggested Answer: B

If the 8% return exactly equals the present value of the future flows ., NPV is zero), then simply determine the present value of the future inflows. Thus, Hopkins Company's initial cash outlay is $19,090 [($2,500)(PVIFA at 8% for 10 periods) + ($5J00)(PVlF at 8% for 10 periods ($2,500)(6.710) + ($5,000)(.463)].

by Lina at Mar 23, 2025, 06:53 PM

Limited Time Offer

25%

Off

Get Premium CMA Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Jeff

7 months ago

Nope, it's not the Fed rate either!

upvoted 0 times

...

Therese

7 months ago

Wait, is it really just that? Seems too simple.

upvoted 0 times

...

Nana

7 months ago

I thought it was the Treasury bill rate.

upvoted 0 times

...

Vanesa

7 months ago

I agree, C is the right choice!

upvoted 0 times

...

Margret

8 months ago

It's definitely the minimum desired rate of return set by the firm.

upvoted 0 times

...

Idella

8 months ago

I’m leaning towards option C, the minimum desired rate of return. It just makes sense in the context of present value, but I could be wrong!

upvoted 0 times

...

Phil

8 months ago

I feel like the prime rate might be relevant, but it seems more like a general interest rate than a discount rate for present value calculations.

upvoted 0 times

...

Derrick

8 months ago

I remember practicing a question where the discount rate was linked to the Treasury bill rate. Could that be the right answer here?

upvoted 0 times

...

Vallie

9 months ago

I think the discount rate is related to the firm's desired return, but I'm not entirely sure if it's the minimum rate.

upvoted 0 times

...

Leonor

9 months ago

Ah, I remember learning about this in class. The discount rate is the firm's minimum desired rate of return, not the Federal Reserve rate or Prime rate. I'm confident option C is the correct answer.

upvoted 0 times

...

Margarett

9 months ago

The discount rate is the rate used to calculate the present value of future cash flows, right? I think it's the Treasury bill rate, since that's a common benchmark for risk-free investments. I'll select option B.

upvoted 0 times

...

Jutta

9 months ago

Hmm, I'm a bit unsure about this one. I know the discount rate is important for present value, but I can't remember if it's the Federal Reserve rate, Treasury bill rate, or something else. I'll have to think this through carefully.

upvoted 0 times

...

Carmelina

9 months ago

I'm pretty sure the discount rate used in present value calculations is the minimum desired rate of return set by the firm, so I'll go with option C.

upvoted 0 times

...

Tayna

1 year ago

If the discount rate was the Prime rate, I'd be discounting my future earnings at the same rate as my credit card. Not very realistic, is it?

upvoted 0 times

Geraldo

1 year ago

C) Minimum desired rate of return set by the firm

upvoted 0 times

...

Ettie

1 year ago

B) Treasury bill rate

upvoted 0 times

...

Olen

1 year ago

A) Federal Reserve rate

upvoted 0 times

...

Glory

1 year ago

The Federal Reserve rate? What is this, a trick question? That's the interest rate the Fed uses, not what businesses use for their own investments.

upvoted 0 times

Ronald

1 year ago

B) Treasury bill rate.

upvoted 0 times

...

Lauran

1 year ago

C) Minimum desired rate of return set by the firm.

upvoted 0 times

...

Jordan

1 year ago

A) Federal Reserve rate

upvoted 0 times

...

Nydia

1 year ago

The prime rate? Really? That's for commercial loans, not for discounting future cash flows. C is the way to go.

upvoted 0 times

Lera

1 year ago

The Federal Reserve rate and Treasury bill rate are also not typically used as the discount rate in present value calculations.

upvoted 0 times

...

Daryl

1 year ago

Yeah, the prime rate is not typically used for discounting future cash flows.

upvoted 0 times

...

Antonette

1 year ago

I agree, the minimum desired rate of return set by the firm is the discount rate used in present value calculations.

upvoted 0 times

...

Roslyn

1 year ago

I think the Treasury bill rate is the right answer here. It's a common proxy for the risk-free rate used in present value calculations.

upvoted 0 times

Erick

1 year ago

I'm not sure, but I think the Prime rate could also be a possible answer.

upvoted 0 times

...

Salome

1 year ago

I believe it's the Federal Reserve rate that is used in present value calculations.

upvoted 0 times

...

Tequila

1 year ago

I think it might actually be the minimum desired rate of return set by the firm.

upvoted 0 times

...

Barbra

1 year ago

I agree, the Treasury bill rate is commonly used as the risk-free rate.

upvoted 0 times

...

Kerry

1 year ago

The discount rate is definitely the minimum desired rate of return set by the firm. That's what we've been learning in our finance classes.

upvoted 0 times

Elliot

1 year ago

Yes, that's correct. It's an important concept in finance.

upvoted 0 times

...

Roosevelt

1 year ago

I agree, the discount rate is the minimum desired rate of return set by the firm.

upvoted 0 times

...

Edwin

1 year ago

That makes sense, the firm's desired rate of return would be more relevant for present value calculations.

upvoted 0 times

...

Lacresha

1 year ago

I disagree, I believe it is the Minimum desired rate of return set by the firm.

upvoted 0 times

...

Edwin

1 year ago

I think the discount rate ordinal used in present value calculations is the Treasury bill rate.

upvoted 0 times

...