FIN-315 Business Finance I Exam 2

Question
Question 1

A local brokerage firm is offering a zero coupon certificate of deposit for $10,000. At maturity, three years from now, the investor will receive $14,000. What is the rate of return on this investment?

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Answer

14 percent

13 percent

12 percent

11 percent

Question 2

Zheng Sen wishes to accumulate $1 million by the end of 20 years by making equal annual end-of-year deposits over the next 20 years. If Zheng Sen can earn 10 percent on his investments, how much must he deposit at the end of each year?

Answer

$ 14,900

$ 50,000

$117,453

$17,460

Question 3

Colin would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?

Answer

$1,862

$2,457

$3,000

$2,234

Question 4

The future value of $200 received today and deposited at 8 percent compounded semi-annually for three years is

Answer

$380.

$158.

$253.

$252.

Question 5

If the required return is less than the coupon rate, a bond will sell at

Answer

par.

a discount.

a premium.

book value.

Question 6

Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

Answer

$19,292

$14,938

$40,000

$144,104

Question 7

The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately

Answer

5%.

7%.

30%.

None of these.

Question 8

The present value of a $25,000 perpetuity at a 14 percent discount rate is

Answer

$178,571.

$285,000.

$350,000.

$219,298.

Question 9

Hewitt Packing Company has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate. The issue has ten years remaining to the maturity date. Bonds of similar risk are currently selling to yield a 12 percent rate of return. The current value of each Hewitt bond is ________.

Answer

$791.00

$1,000

$1,052.24

$1,113.00

Question 10

The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is

Answer

$28,974.

$31,292.

$14,494.

$13,420.

Question 11

What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?

Answer

8.5 percent

9.4 percent

12.0 percent

13.2 percent

Question 12

Tangshan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industries bond is ________.

Answer

10.79 percent

11.39 percent

12.19 percent

13.29 percent

Question 13

Find the present value of the following stream of cash flows, assuming that the firm’s opportunity cost is 25 percent.

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Answer

$27,168

$35,200

$34,000

$32,500

Question 14

A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm’s bond will sell for ________ today.

Answer

$1,000

$716.67

$840.67

$1,123.33

Question 15

The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is

Answer

$ 50.

$200.

$518.

$ 77.

Question 16

Alexis owns stock in a company which has consistently paid a growing dividend over the last 10 years. The first year Alexis owned the stock, she received $4.50 per share and in the 10th year, she received $4.92 per share. What is the growth rate of the dividends over the last 10 years?

Answer

5 percent

4 percent

2 percent

1 percent

Question 17

The future value of $100 received today and deposited at 6 percent for four years is

Answer

$126.

$ 79.

$124.

$116.

Question 18

Aunt Tilly borrows $3,500 from the bank at 12 percent annually compounded interest to be repaid in four equal annual installments. The interest paid in the first year is

Answer

$ 152.

$ 277.

$ 420.

$1,152.

Question 19

How long would it take for Nico to save an adequate amount for retirement if he deposits $40,000 per year into an account beginning one year from today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement?

Answer

15.0 years

15.5 years

14.5 years

16.5 years

Question 20

Nico makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was

Answer

$24,462.

$15,000.

$ 3,092.

$20,175.

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