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Date Posted: 12:01:04 07/21/01 Sat
Author: Son Phan
Subject: Re: Sample Exam 2 questions
In reply to: Charles Hodges 's message, "Sample Exam 2 questions" on 14:58:13 07/19/01 Thu

>I have tried to find some sample Exam 2 questions.
>Since we did not do a second exam the last time I
>taught 3300, I have no pure exams. Instead I looked
>through old quizzes and found some questions that
>covered the chapter 7-10 material. I will post
>additional questions as I get the chance, if I can
>find relevant questions.
>
>Note, if someone will attempt to post answers to these
>questions, then I will correct their answers.
>
>
>1. You have a $150,000 30-year mortgage with an
>interest rate of 7.20% p.a., compounded monthly.
>Payments are made monthly. What is the remaining
>balance on the mortgage after 10 years?

>d. $129,317.74

>
>2. You have just taken out a 10-year, $24,000 loan to
>purchase a new car. This loan is to be repaid in 120
>equal end-of-month installments. If each of the
>monthly installments is $300, what is the effective
>annual interest rate on this car loan?

>e. 9.0438%
>
>3. The NPV (t=0) of the following cash flow stream is
>Zero (0), when discounted at a nominal annual rate of
>10% (quarterly compounding). The value of the missing
>(i.e., t=3) cash flow is closest to
>
>Year 1 2 3 4 5 6
>Cash Flow -30 -30 ??? +20 +40 +50
>
>
>b. -18
>
>>
>4. The last dividend just paid by Quantum Inc. was
>$2.00. Quantum's growth rate is expected to be a
>constant 15 percent for 3 years, after which dividends
>are expected to grow at a rate of 10 percent forever.
>Quantum's required rate of return on equity (ks) is 14
>percent. What is the current price of Quantum's
>common stock?
>a. $62.57

>5. Which of the following is the best description of
>the overall goal of the financial manager in a
>corporation where shares are publicly traded?
>

>d. Maximize the value of outstanding shares

>11. The current price of a 10-year, $1,000 par value
>bond is $1,158.91. Interest on this bond is paid every
>six months, and the nominal annual yield is 14
>percent. Given these facts, what is the annual coupon
>rate on this bond?
>
d. 17%
>
>
>13. Waters Corporation has a stock price of $20 a
>share. The stock's year-end dividend is expected to be
>$2 a share (D0 = $2.00). The stock's required rate of
>return is 15 percent and the stock's dividend is
>expected to grow at the same constant rate forever.
>What is the expected price of the stock seven years
>from now?
>
> d. $23
>
>
>1. Which of the following statements is most
>correct?
>
>a. The present value of an annuity due will exceed the
>present value of an ordinary annuity (assuming all
> else equal).
>b. The future value of an annuity due will exceed the
>future value of an ordinary annuity (assuming all else
> equal).
>
>d. Statements a and b are correct.
>
>
>
>2. Frank Lewis has a 30-year, $100,000 mortgage with
>a nominal interest rate of 10 percent and monthly
>compounding. Which of the following statements
>regarding his mortgage is most correct?
>
.
>b. The proportion of the monthly payment which
>represents interest will be lower for the last payment
>than
> for the first payment on the loan.
>c. The total dollar amount of principal being paid off
>each month gets larger as the loan approaches maturity.

>e. Statements b and c are correct.
>
>
>3. Your uncle has agreed to deposit $3,000 in your
>brokerage account at the beginning of each of the next
>five years (t = 0, t = 1, t = 2, t = 3 and t = 4). You
>estimate that you can earn 9 percent a year on your
>investments. How much will you have in your account
>four years from now (at t = 4)? (Assume that no money
>is withdrawn from the account until t = 4.)
>
>
>b. $17,954.13
>
>
>
>4. An investment pays you 9 percent interest
>compounded semiannually. A second investment of equal
>risk, pays interest compounded quarterly. What nominal
>rate of interest would you have to receive on the
>second investment in order to make you indifferent
>between the two investments?
>
>b. 8.90%

>5. A homeowner just obtained a $90,000 mortgage.
>The mortgage is for 30 years (360 months) and has a
>fixed nominal annual rate of 9 percent, with monthly
>payments. What percentage of the total payments made
>the first two years will go toward repayment of
>interest?
>a. 89.30%
>b. 91.70%
>c. 92.59%
>d. 93.65%
>e. 94.76%
>
>6. You have been offered an investment that pays
>$500 at the end of every 6 months for the next 3
>years. The nominal interest rate is 12 percent;
>however, interest is compounded quarterly. What is the
>present value of the investment?
>a. $2,458.66
>
>
>1. As the interest rate decreases (and approaches
>zero), the future value of a series of cash flows (for
>example, $10,000 per year for 15 years):
>a) Approaches the sum of the cash flows
>
>
>2. For positive interest rates, an increase in the
>discount rate _____________ the absolute value of the
>present value of an annuity and _______________ the
>absolute value of the future value of the same annuity.

>d) decreases; increases.
>

>
>3. If you purchased a $10,000 certificate of deposit
>(CD) today with a nominal annual interest rate of 12%,
>with monthly compounding, what would be the CD worth
>when it matures in 6 years?
>a) $20,471

>
>4. A Microgates Industries bond has a 10 percent
>coupon rate and a $1,000 face value. Interest is paid
>semiannually, and the bond has 20 years to maturity.
>If investors require a 12 percent yield, what is the
>bond's value and what is the effective annual yield on
>the bond?
>
>
>e) $ 849.54 and 12.36 %
>
>5. You recently purchased a 20-year investment which
>pays you $300 at t=1, $400 at t=2, $500 at t=3, $600
>at t=4, and some fixed cash flow, X, at the end of
>each of the remaining 16 years. The investment cost
>you $6,737.21. Alternative investments of equal risk
>have a required return of 6 percent. What is the
>annual cash flow received at the end of each of the
>final 16 years, that is, what is X?
>
>
>c) $650
>
>
>6. BrainDrain software has 14 percent coupon bonds on
>the market with seven years to maturity. The bonds
>make semiannual payments and currently sell for $1050.
>What is the current yield and yield to maturity on
>BrainDrain's bonds?
>
>a) Current Yield = 13.33 % and YTM = 12.89 %
>
>
>7. Bonnie Deep has just purchased a Rolls Royce and
>borrowed $88,477 towards the purchase. The amount is
>to be repaid over a period of 11 years in payments of
>$1,010 each month. What is the Annual Percentage Rate
>(APR) of the loan?
>
>
>d) 8.00%
>

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