FIN 301 – Porter 2/4/09 Practice Exam 1
1. What is the future value of an initial $400 after 13 years if the annual interest rate is 12%?
a. $1,832.98
b. $1,745.40
c. $1,058.23
d. $1000.00
2. What is the present value of $350 due in 6 years at 15% nominal interest rate with semi annual compounding?
a. $146.95
b. $122.98
c. $198.78
d. $254.65
3. You won the lottery and you have three different choices for how to receive your money. Option A: A lump sum of $55 million. Option B: 10 end of year payments of $8.5 million. Option C: 30 end of year payments of 4 million. If you expect to earn 8% annually, which option should you chose?
a. Option A
b. Option B
c. Option C
d. There isn’t enough information to decide.
4. You just graduated from college and have decided to buy your first house. In order to finance the purchase, you have decided to take out a loan for $200,000 from your local bank. It is a 30 year mortgage with an 8.4% nominal interest rate and monthly payments. What is the payment?
a. $1,523.68
b. $9,099.84
c. $3,333.33
d. $1,513.08
5. Using the information from number 4, how much total interest will you pay for the life of the loan?
a. $16,800
b. $10,000
c. $348,523.11
d. $111,352.89
6. Using the information from number 4, how much interest did you pay for the 52nd payment? How much principal?
a. $1,347.16 Interest and $176.52 Principal
b. $100,000 Interest and $25,987 interest
c. $1,523.68 Interest and $0 Principal
d. $121.89 Interest and $1,401.79
7. What is the future value of an 8 year $350 ordinary annuity, if the quoted interest rate is 9.6% compounded monthly?
a. $4,497.81
b. $5000.04
c. $4007.49
d. $6999.08
8. What is the future value of a 5 year annuity due that promises to pay you $300 each year. Assume that all payments are reinvested at 7% each year until year 5.
a. $1,725.22
b. $1,845.99
c. $1,099.45
d. $1,776.23
9. How long will it take $500 to double if it earns a 5% annual rate?
a. 14.2 years
b. 5 years
c. 8.2 years
d. 9.35 years
10. What is the present value of a $488 perpetuity if the interest rate is 6.5%? What if the interest rate doubles to 13%
a. @6.5 the PV is $7,507.69 and @13% the PV is $3,753.85. Thus the present value of the perpetuity is halved when the interest rate doubles.
b. @6.5 the PV is $3,573.85 and @13% the PV is $7,507.69. Thus the present value of the perpetuity doubles when the interest rate doubles.
c. I have no idea…how do you calculate the PV of a perpetuity again?
d. The perpetuity value is $488 no matter what interest rate it is invested at.
11. An investment pays you $100 at the end of the next 3 years. The investment will then pay you $200 at the end of year 4, $300 at the end of year 5, and $500 at the end of year 6. If the interest rate earned on the investment is 8%, what is its present value?
a. $987.09
b. $923.98
c. $5567.99
d. $1400.00
12. Investment X will pay 5% compounded annually. Investment Y will pay 4% compounded daily. Which is the most financially rewarding investment and why?
a. Investment X because it has a higher interest rate.
b. Investment Y because it is compounded more frequently.
c. Investment X because the EAR of X is greater than the EAR of Y.
d. Both investments yield the same return.
13. Your bank quoted you a CD at 12% compounded monthly. What is its EAR?
a. 12.55%
b. 11.65%
c. 12%
d. 12.68%
14. The Learning Foundation reported EBITDA of $8.5 million, and Net Income of $2.82 million. It had $3.5 million of interest expense, and the corporate tax rate was 40%. What was the depreciation and amortization expense?
a. $3.5 million
b. $0.5 million
c. $0.3 million
d. $0.23 million
15. Company X just filed its financial statements. They reported $40 million net income, and $800 million retained earnings. The year before, retained earnings were $770 million. How much was paid in dividends to shareholders?
a. $15 million
b. $24 million
c. $10 million
d. $26 million
16. What is a firm’s intrinsic value?
a. A firm’s intrinsic value is its assets minus its liabilities.
b. A firm’s intrinsic value is an estimate of a stock’s “true” value based on accurate risk and return data. It can be estimated but not precisely measured.
c. A firm’s intrinsic value is its market price, the value based on perceived but possibly incorrect information as seen by the marginal investor.
d. A firm’s intrinsic value is the total number of shares outstanding times the value per share.
17. An assets ____ reflects the ease of selling the asset and converting it to cash at a fair market value.
a. Growth Opportunities
b. Intrinsic Value
c. Market Price
d. Liquidity
18. A ______is an unincorporated business owned by a single individual.
a. Partnership
b. Proprietorship
c. Joint Venture
d. Monopoly
19. I decided to start an unincorporated business with 3 of my closest friends. This is an example of which of the following?
a. Partnership
b. Proprietorship
c. S Corp
d. Corporation
20. A dollar ______is worth _____ a dollar ______.
a. tomorrow, more than, today
b. today, less than, tomorrow
c. today, more than, tomorrow
d. yesterday, the same as, tomorrow