Midterm #1 – Spring 2017 – Econ 134A
April 26, 2017
Test Form A
Name (Please Print) : ______
Seat:______
By signing below, I acknowledge that I have checked photo identification to the people to my immediate left and right, and that the name matches what is listed on the test and scantron. (Students do not need to go across an aisle to check identification.) If a student does not have a photo identification, I will report it to the instructor before the test starts.
I am also aware that I need to bubble in the form letter and my name and perm number on my scantron, and include my name, perm number, and section time on the open response sheet. I am aware that failure to do any of these or not having a photo identification will result in a loss of one point on this test.
Finally, by signing below, I acknowledge that this test will count as part of my course grade. If I fail to turn in the test, a score of zero will be entered.
Name (Please Print):______
Signature______
Econ 134AJohn Hartman
Test 1, Form AApril 26, 2017
Instructions:
YOU WILL TURN IN YOUR SCANTRON AND THE PROBLEMS PAGE. MAKE SURE ALL WORK AND ANSWERS ARE PROVIDED ON THESE. BUBBLE IN YOUR TEST FORM, NAME, AND PERM NUMBER ON YOUR SCANTRON.
You have 40 minutes to complete this test, unless you arrive late. Late arrival will lower the time available to you, and you must finish at the same time as all other students.
Cheating will not be tolerated during any test. Any suspected cheating will be reported to the relevant authorities on this issue.
You are allowed to use a nonprogrammable four-function or scientific calculator that is NOT a communication device. You are NOT allowed to have a calculator that stores formulas, buttons that automatically calculate IRR, NPV, or any other concept covered in this class. You are NOT allowed to have a calculator that has the ability to produce graphs. If you use a calculator that does not meet these requirements, you will be assumed to be cheating.
Unless otherwise specified, you can assume the following:
- Negative internal rates of return are not possible.
- Equivalent annual cost problems are in real dollars.
You are allowed to turn in your test early if there are at least 10 minutes remaining. As a courtesy to your classmates, you will not be allowed to leave during the final 10 minutes of the test.
Your test should have 5 multiple choice questions (10 points) and 2 problems (13 points). The maximum possible point total is 24 points. If your test is incomplete, it is your responsibility to notify a proctor to get a new test.
For your reference, an example of a well-labeled graph is below:
MULTIPLE CHOICE: Answer the following questions on your scantron. Each correct answer is worth 2 points. All incorrect or blank answers are worth 0 points. If there is an answer that does not exactly match the correct answer, choose the closest answer.
1. A stated annual interest rate of 18%, compounded 10 times per year, is equivalent to a stated annual interest rate of _____ if compounded 20 times per year.
A. 17.8%B. 17.9%C. 18.0%D. 18.1%E. 18.2%
2. Oswald is receiving the money from a $50,000 loan later today. This loan has a 15% stated annual interest rate, compounded monthly, and a minimum monthly payment of 1% per month for the next year. The first payment for the loan will be one month from today. If he makes the minimum monthly payment each month, how much will his payment be two months from today? (Note: The minimum monthly payment is based off of the balance one month before the payment is made.)
A. $500.00B. $500.50C. $501.25D. $502.00E. $503.00
3. Clarabelle has invested in a project with an internal rate of return of 5%. She makes a deposit today of $1,000, and receives a payment of $250 one year from today, $300 two years from today, $400 three years from today, and _____ four years from today. There are no other cash flows from this investment.
A. $950B. $550C. $175D. $145E. $50
4. Sebastian is figuring out how to invest some money inherited from his aunt’s silver collection. If Investments X and Y are mutually exclusive, which of the following statements is true?
A. If Sebastian invests in X, he must invest in Y
B. Sebastian cannot invest in either X or Y
C. If Sebastian invests in Y, he cannot invest in X
D. Both investments must have the same amount of money invested in them
E. None of the above
5. Roger is about to make a deposit in Doom National Bank. Roger does not know if he earns simple interest or compound interest. He makes a $10,000 deposit today and withdraws the money 5 years from today. If the annual interest rate is 20%, how much MORE interest does Roger earn with compound interest (relative to simple interest)?
A. $6,000B. $5,000C. $4,000D. $3,500E. $3,000
Name______Perm #______Day/time of section______
For the following problems, you will need to write out the solution. You must show all work to receive credit. Each problem (or part of problem) shows the maximum point value. Provide at least four significant digits to each answer or you may not receive full credit for a correct solution.Show all work in order to receive credit. You will receive partial credit for incorrect solutions in some instances. Clearly circle your answer(s) or else you may not receive full credit for a complete and correct solution.
6. (7 points) Jessie buys a new house in Anaheim, California. The amount loaned for the mortgage is $600,000. The loan will be paid off with 400 equal monthly payments of $7,000, starting 24 months from today, and a balloon payment 425 months from today. The stated annual interest rate is 12%, compounded monthly. How much must the balloon payment be in order to completely pay off the loan?
7. Ichabod can purchase the Toad 3000 vacuum cleaner for $500. The machine lasts for six years, and has a $200 maintenance cost in three years. The relevant effective annual interest rate is 14%.
(a) (4 points) What is the equivalent annual cost of this machine?
(b) (2 points) Ichabod could also lease the machine. If he leased the machine, he would have to pay $150 per year for each of the next six years. The first of the six lease payments will be made today. Should Ichabod purchase or lease the machine? Make sure to completely justify your answer to receive credit.
NOTE: YOU CAN TEAR THIS SHEET OFF AND USE AS EXTRA SCRATCH PAPER. PLEASE NOTE THAT ANYTHING ON THIS SHEET WILL NOT BE GRADED UNLESS EXPLICITLY SPECIFIED ON THE TEST.
Perpetuity
Annuity
Growing perpetuity
Growing annuity
Quadratic formula
ax2 + bx + c = 0
Logarithmic rule
ab= c b = log c / log a