Finance Exam #1 Questions

Front 1

The firm can be thought of as a ______________ of policies.

Back 1

Nexus

Front 2

The firm exists to create value for _____________________.

Back 2

stakeholders

Front 3

An advantage of organizing a firm as a corporation is that taxes are paid at the shareholder level.

Back 3

False

Front 4

Profit maximization may not lead to the highest possible share price for at least three reasons They are,

Back 4

profits not always available to shareholders, timing, risk

Front 5

Suppose a project under consideration will earn returns equal to current investments but its expected returns are less certain (i.e., riskier). Financial managers would accept this project for investment.

Back 5

False

Front 6

Finance is the art and science of managing money.

Back 6

True

Front 7

Who is a financial manager?

Back 7

Anyone whose decisions affect the cash flows of the firm.

Front 8

What are the advantages of the corporate form of business organization?

Back 8

Limited liability, Easy transfer of ownership, Ease of raising additional funds, and perpetual life

Front 9

Limited liability means that owners of a business are not personally liable for all of its debts – owners can only lose the lessor of the value of their investment or $100,000.

Back 9

False

Front 10

Shareholders get any assets or cash flows of the corporation that remain after all other debts have been paid.

Back 10

True

Front 11

We can think of equity as a degree of ownership in any asset after subtracting all debts associated with that asset. Shareholder equity is calculated as Total ______ minus Total Liabilities

Back 11

Assets

Front 12

By law, the board of directors makes decisions as a fiduciary on behalf of company executives.

Back 12

False

Front 13

The board makes decisions concerning the hiring and firing of personnel, dividend policies and payouts, and executive compensation.

Back 13

True

Front 14

The separation of ownership (shareholders) and control (managers) in larger corporations with many shareholders can lead to conflicts of interest between managers and owners.

Back 14

True

Front 15

According to the video - it took Enron 16 years to grow from a $10 billion company to a $64 billion company and______ days to go bankrupt.

Back 15

24

Front 16

According to the video - The other thing about people at Enron is a lot of them were former ________.

Back 16

Nerds

Front 17

The CEO of Audi was arrested in connection with the investigation Audi cheated on emissions tests. After viewing the three videos, what would you tell your daughter?

Back 17

Conflicts of interest can lead managers to act in ways that can destroy shareholder value.

Front 18

Tyco CEO Dennis Kozlowski spent $2 million on his wife's 40th birthday party. Tyco paid 1/2 of the bill, which is an example of an agency cost. Future President of the United States Donald trump called his behavior

Back 18

tacky

Front 19

Amazon and Walmart are examples of corporations because

Back 19

they are controlled by managers acting as agents for shareholders who have limited liability

Front 20

The goal of maximizing shareholder wealth can be expressed in several equivalent ways (select all correct answers)

Back 20

Maximizing shareholder returns

Maximizing the market capitalization of the firm

Maximizing the long-term value of stock

Front 21

Profit maximization may not lead to the highest possible share price because (check all correct)

Back 21

Profits do not necessarily result in cash flows available to stockholders. There is a difference in accounting values and cash flows.

Timing is important-the receipt of funds sooner rather than later is preferred. Time is money!

Profit maximization fails to account for risk - extremely profitable opportunities may be too risky.

Front 22

Shareholders are also known as the residual owners of the firm's cash flows - they only get paid after other stakeholders are content.

Back 22

False

Front 23

What does the author of the article get wrong about maximizing shareholder value?

Back 23

creating shareholder value requires creating value for customers.

confuses shareholder wealth maximization goals with greed

does not acknowledge shareholders are residual owners of cash flows

Front 24

Once a firm decides to accept a project, then the financial manager must decide where to get the money to pay for the project. Funding for a project can be simplified from

Back 24

Equity

Debt

Front 25

The difference between ... and ... is referred to as Net Working Capital

Back 25

short term assets/short-term liabilities

Front 26

BNSF projects must be expected to earn at least what rate of return to be funded (implemented)?

Back 26

9%

Front 27

Financial markets are __________ in which suppliers of funds and demanders of funds can transact business directly.

Back 27

Forums

Front 28

From investors’ perspectives, the role of capital markets is to be an efficient market that allocates funds to their most productive uses.

Back 28

True

Front 29

The shadow banking system refers to _____________involved in facilitating the creation of credit, that is lending, much like traditional banks but are not subject to regulatory oversight.

Back 29

Financial intermediaries

Front 30

Why do firms need the financial system?

Back 30

to facilitate short term cash management policies

to obtain long term funds

accommodate near term cash inflows and outflows

Front 31

What is the hurdle rate?

Back 31

the cost of financing

Front 32

Financial institutions are intermediaries that channel the savings of individuals, businesses, and governments into loans or investments.

Back 32

True

Front 33

Investment banks make loans that individuals and businesses use to buy goods or expand business operations, which in turn leads to more deposited funds that make their way to bank

Back 33

False

Front 34

The capital market is where firms obtain external short term financing.

Back 34

False

Front 35

The shadow banking system has escaped regulation primarily because it does not accept traditional bank deposits. As a result, many of the shadow banking institutions have been able to employ higher market, credit and liquidity risks, and have higher capital requirements.

Back 35

False

Front 36

From investors' perspectives, the role of capital markets is to be an efficient market that allocates funds to their most productive uses.

Back 36

True

Front 37

A liquid market-

Back 37

has many available buyers and sellers and comparatively low transaction costs

Front 38

Francis Galton's discovery was

Back 38

A diverse collection of independently deciding individuals is likely to make better value decisions than individuals or even experts

Front 39

An efficient market allocates funds to their most productive uses as a result of competition among wealth-maximizing investors and determines and publicizes prices that are believed to be close to their true value.

Back 39

True

Front 40

As described in "The 2008 Credit Crisis Visualized," the financial system, commonly known as Wall Street, brings together

Back 40

investors and homeowners (borrowers)

Front 41

As described in "he 2008 Credit Crisis Visualized low interest rates

Back 41

incentivized banks to increase leverage

Front 42

Financial leverage is borrowing money to amplify the outcome of a

Back 42

Deal

Front 43

A collateralized debt obligation (CDO) bundles house payments and creates safe, okay, and risky investment vehildes.

Back 43

True

Front 44

From" The Inside Job" trailer - One criticism leveled at investment banks following the 2008 financial crisis was they were having massive private gains at the expense of public losses.

Back 44

True

Front 45

From "The Big Short, the antagonists (those betting against the big banks) individually or together

Back 45

sought to profit from the greed and stupdity of big banks

argued fraud has never worked (long term)

argued there is no difference between stupid and illegal

Front 46

Lending discrimination occurs when lenders base credit decisions on factors related to the applicant’s creditworthiness.

Back 46

False

Front 47

Lending discrimination happens when lenders base credit decisions on factors other than the borrower’s creditworthiness, including any of the protected classes defined under federal law. Today, what three federal laws offer protection against lending discrimination?

Back 47

The Fair Housing Act, The Community Reinvestment Act, and the Equal Credit Opportunity Act

Front 48

What practice made it impossible for many members of minority groups to qualify for loans to buy and improve homes?

Back 48

Redlining

Front 49

Suppose Fidelity Investments requires applicants for its financial advisor positions to have the Chartered Financial Analyst (CFA) designation, hires no Black financial advisors, and very few Blacks have the CFA designation. The disparity in Fidelity's hiring of White versus Black financial advisors is most likely attributable to

Back 49

Statisical Discrimination

Front 50

From Professor Charles' youtube talk in the e-text. Suppose you have two labor markets with different sets of employers and with different average prejudice against Blacks levels. Therefore, discrimination against Blacks will be worse, as measured by wage gaps between Whites and Blacks, in the labor market with the highest average level of prejudice against Blacks.

Back 50

False

Front 51

From Professor Charles' youtube talk in the e-text. Professor Charles' research shows that average prejudice levels over the past 50 years have decreased dramatically but wage and promotion differences persist but at a lower level.

Back 51

True

Front 52

Finance is mainly a backward-looking summary of past decisions

Back 52

False

Front 53

The market value of an assets is its cost at the time of purchase

Back 53

False

Front 54

Book values have the disadvantage that they change unpredictably and may not be easy to measure.

Back 54

False

Front 55

Revenues or Sales ← money received by the firm

- Expenses ← debts to suppliers and employees

??? ← accounting item to estimate a reduction in the value of an asset with the passage of time, due in particular to wear and tear

= EBIT ← Earnings before Interest and Taxes

- Interest Expense ← Money owed to banks or bondholders

= EBT ← Earnings before taxes

- Tax ← debt to the government

= Net Income ← Net Income

Back 55

Depreciation Expense

Front 56

What is Walmart’s revenue in 2018 (in million)? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 56

500,343

Front 57

Select all the different methods that can be used to compute depreciation expense.

Back 57

Modified Accelerated Cost Recovery System (MACRS)

Straight-line Depreciation

Accelerated Cost Recovery System (ACRS)

Front 58

Depreciation represents a change in cash holdings so it impacts earnings after taxes.

Back 58

False

Front 59

The top corporate tax rate is ... percent for 2018 and after.

Back 59

21

Front 60

Here are the U.S. tax rates and their corresponding tax brackets based on filing status for single individuals (i.e. not corporations)

If taxable income is:

Then income tax equals:

Not over $9,875

10% of the taxable income

Over $9,875 but not over $40,125

$987.50 plus 12% of the excess over $9,875

Over $40,125 but not over $85,525

$4,617.5 plus 22% of the excess over $40,125

Over $85,525 but not over $163,300

$14,605.5 plus 24% of the excess over $85,525

Over $163,300 but not over $207,350

$33,271.5 plus 32% of the excess over $163,300

Over $207,350 but not over $518,400

$47,367.5 plus 35% of the excess over $207,350

Over $518,400

$156,235 plus 37% of the excess over $518,400

Layla's taxable income for 2019 was $175,404. How much are her federal income taxes to the nearest dollar? Do not enter $ sign or thousands comma -> 1000 and not $1,000

Back 60

37145

Front 61

Operating Cash Flow (OCF) = X – Y+ Z

Back 61

X EBIT

Y taxes

Z depreciation

Front 62

Net income is determined by accounting items such as depreciation and represents actual changes in the cash available to a firm.

Back 62

False

Front 63

What was Walmart's operating cash flow in 2014 (in millions)? To access Walmart's income statement, click here

Back 63

$27,567

Front 64

The Balance Sheet shows both the assets of a firm and how those assets were financed.

Back 64

The left-hand side of the balance sheet lists= everything that a firm has (the firm’s assets)

The right-hand side of the balance sheet lists= how those assets were originally paid for - either through contributions by the owners (equity) or with borrowed money (debt).

Current Assets= Cash, Accounts Receivable, Inventory

Current Liabilities= Accounts Payable, Notes Payable

Front 65

What is Walmart's Total Assets for the year of 2019? (in millions) Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23 To access Walmart's Balance Sheet, click here

Back 65

219295

Front 66

What is the percentage of total current assets in terms of total assets for Walmart for the year of 2016? (Answer in number format with % unit - for example, 25.6%) To access the common size balance sheet, click here

Back 66

30.2%

Front 67

Which of these are liquidity ratios?

Back 67

Current Ratio

Cash Ratio

Quick Ratio

Front 68

Liquidity is the ability to convert assets into cash quickly and cheaply.

Back 68

True

Front 69

The purpose of liquidity ratios is to determine a company's ability to pay off current debt obligations by raising external capital.

Back 69

False

Front 70

Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the cash ratio, the quick ratio, the water ratio, and the current ratio

Back 70

False

Front 71

What is Walmart's cash ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.112)? To access WMT's financial statement, click here

Back 71

0.086

Front 72

What is Walmart's Quick ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.112)? To access WMT's financial statement, click here

Back 72

0.158

Front 73

What is Walmart's current ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.112)? To access WMT's financial statement, click hers

Back 73

0.76

Front 74

Which of these are leverage ratios?

Back 74

Equity Multiplier

Debt/Equity Ratio

Debt Ratio

Long-term Debt Ratio

Front 75

Leverage may increase both the risk and the return to a firm’s shareholders.

Back 75

True

Front 76

What is Walmart's debt ratio (Total liabilities/Total Assets) for the year of 2018 (round it to 3 numbers after the decimal point -> 0.581)? To access WMT's financial statement, click here

Back 76

0.605

Front 77

What is Walmart's Equity Multiplier for the year of 2018 (round it to 3 numbers after the decimal point -> 0.581)? To access WMT's financial statement, click here

Back 77

2.626

Front 78

What is Walmart's EBIT for the year of 2018 (round it to 3 numbers after the decimal point -> 0.581)? EBIT= net income + net income attributable to noncontrolling interest + income taxes + interest expense ("Interest Expense Net" plus "Interest Income" ) To access WMT's financial statement, click here

Back 78

17101

Front 79

What is Walmart's Times Interest Earned Ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.581)? To access WMT's financial statement, click here

Back 79

8.646

Front 80

What is Walmart's Cash Coverage Ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.581)? To access WMT's financial statement, click here

Back 80

13.954

Front 81

Which of these are Turnover ratios?

Back 81

Total Asset Turnover Ratio

Inventory Turnover Ratio

Days’ Sales in Inventory

Receivables Turnover

Front 82

Firms with higher turnover ratios are generally more operationally efficient than firms with lower turnover ratios.

Back 82

True

Front 83

What is Walmart's inventory turnover ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.112)? To access WMT's financial statement, click here

Back 83

8.528

Front 84

What is Walmart's Days’ Sales in Inventory ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.112)? To access WMT's financial statement, click here

Back 84

42.8

Front 85

What is Walmart's Total Asset Turnover Ratio ratio for the year of 2018 (round it to 3 numbers after the decimal point -> 0.112)? To access WMT's financial statement, click here

Back 85

2.481

Front 86

Which of these are profitability ratios?

Back 86

ROE

ROA

Net Profit Margins

Front 87

Profitability ratios give measures of how the firm’s accounting measures of profits are related to its other accounting items. A Profit Margin is the firm’s profit per dollar of assets and there are three main profit margin measures.

Back 87

False

Front 88

What is Walmart's net profit margin for the year of 2018 (round it to 2 numbers after the decimal point without the % sign -> 9.30 and not 9.3% or .093)? To access WMT's financial statement, click here

Back 88

1.97

Front 89

What is Walmart's ROA for the year of 2018 (round it to 2 numbers after the decimal point without the % sign -> 9.30 and not 9.3% or .093)? To access WMT's financial statement, click here

Back 89

4.82

Front 90

What is Walmart's ROE for the year of 2018 (round it to 2 numbers after the decimal point without the % sign -> 9.30 and not 9.3% or .093)? To access WMT's financial statement, click here

Back 90

12.66

Front 91

Which of these are market ratios?

Back 91

Earnings Per Share

Market-to-Book Ratio

P/E Ratio

Market Capitalization

Front 92

The market value of healthy companies exceed their book value. After all, if managers are not creating value investors will close the business and liquidate (sell) the assets and be better off.

Back 92

True

Front 93

Which are payout and growth rate ratios?

Back 93

Internal Growth Rate

Dividend Payout Ratio

Sustainable Growth Rate

Retention Ratio

Front 94

Walmart's Dividend Payout Ratio for the year of 2018. Enter the answer in percentage format to one decimal place without the % sign -> 9.30 and not 9.3% or .093)? To access WMT's financial statement, click here

Back 94

62.1

Front 95

Walmart's Sustainable Growth Rate for the year of 2018. Refer to the 3.5.2 Leverage Ratios for Walmart page for instructions on how to compute total equity when there is a minority interest. Enter the answer in percentage format to one decimal place without the % sign -> 9.30 and not 9.3% or .093)? To access WMT's financial statement, click here

Back 95

4.8

Front 96

According to the letter to shareholders in Berkshire Hathaway's 2019 Annual Report, Berkshire seeks to buy new businesses that

Back 96

earn good returns on the net tangible capital required in their operation

are run by able and honest managers

are available at a sensible price

Front 97

In a perfect world (one where is no uncertainty, no risk and prices do not change), the opportunity cost of lending lending your friend money for a year is zero.

Back 97

False

Front 98

Compounding is the process of converting future cash flows to today's values.

Back 98

False

Front 99

The lecture identifies basic cash flow patterns, They are (choose all correct).

Back 99

Annuity

Mixed Stream

Perpetuity

Single amount

Front 100

Discounting is the process of converting future cash flows to today's values.

Back 100

True

Front 101

For a lump sum compound interest is interest that is earned on a given deposit and has become part of the ________ at the end of the specified period

Back 101

Principal

Front 102

The relationship between future values and time is linear for simple interest and______ for compound interest.

Back 102

Exponential

Front 103

What is the future value of $100 (the principal_invested at 10% simple interest for 3 years?

Back 103

130

Front 104

Open the Time Value of Money spreadsheet. Using the Double Investment chart worksheet (as in the lecture), about how long would it take to double an investment if the interest rate is 1%? What if the interest rate is 20% (rounding to nearest whole number).

Back 104

70, 5

Front 105

Open the Time Value of Money spreadsheet. Using the Present Values worksheet (as in the lecture), how much more is the present value of a $100 lump sum to be received in 10 years for an interest rate of 5% versus 10%? (do not use $ sign in your answer).

Back 105

??

Front 106

Using the TVM spreadsheet and the OA vs AD 2 worksheet, what is the monthly payment on a $85,000 30 year mortgage (present value) with an APR of 12%? (hint: is a mortgage typically an ordinary annuity or an annuity due?)

Back 106

874.32

Front 107

An annuity is a stream of equal periodic cash flows, over a specified time period. These cash flows can be inflows of returns earned on investments or outflows of funds invested to earn future returns.

Back 107

True

Front 108

The present value of an annuity due is greater than the present value of an ordinary annuity by how much?

Back 108

the discount or interest rate

Front 109

A perpetuity is an annuity with an _.

Back 109

???

Front 110

A perpetuity is an annuity with an ____ life, providing continual periodic cash flows.

Back 110

Infinite

Front 111

You’re going to Ace this!!!!

Back 111

Woohoo!!

Front 112

$100 will be received in 1 year and $200 will be received in two years. The discount rate is 5%. What is the present value of this mixed stream?

Back 112

=(100/1.05) + (200/1.05^2)

Front 113

$100 will be received in 1 year and $200 will be received in two years. The discount rate is 5%. What is the future value of this mixed stream?

Back 113

=100*1.05 + 200*1.05^2

Front 114

The nominal (stated) annual rate is the contractual annual rate of interest charged by a lender or promised by a borrower.

Back 114

True

Front 115

Which of the following is most correct?

Back 115

Compounding more frequently than once a year results in a higher effective interest rate because you are earning on interest on interest more frequently

Front 116

What tools can be used to solve time value of money problems?

Back 116

Tables of TVM factors

Manually by a mathematical formula

Financial calculator

Excel spreadsheet

Front 117

Which of the following is NOT true about the time value of money concept?

Back 117

The general approach is to take money received in the future as a benchmark and compare that to how much the same amount of money is worth now.

Front 118

What is the future value of $100 invested at 10% simple interest for 1 year?

Back 118

110

Front 119

If you feel that the value of $107 in one year is just as good as $100 now. the $100 is the Present Value (PV) of the $107 to be received in one year.

Back 119

True

Front 120

What is the future value of $100 invested at 10% compounded annually for 3 years? Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23

Back 120

133.1

Front 121

You should never compare cash flows occurring at different times without first discounting them to a common date.

Back 121

True

Front 122

The advantage to savers and investors of receiving compound interest rather than simple interest is that future values are larger because interest is earned on accumulated interest payments. Also, the difference in future values becomes smaller as time goes by.

Back 122

False

Front 123

What is the future value of $100 invested at 10% compounded annually for 10 years? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 123

259.37

Front 124

What is the present value of an investment that will give you $100 after 10 years with a rate of 10% compounded annually? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 124

38.55

Front 125

Future values are positively related to interest rates and time - the bigger the interest rate and the more compounding periods, the greater the future value will be.

Back 125

True

Front 126

You end up with $20,000 after investing for 20 years at 8% annually. What was the PV? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 126

4,290.96

Front 127

Maverick Jane places $800 in a savings account paying 6% interest compounded annually. How much money will be in the account at the end of five year? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 127

1,070.58

Front 128

You start with $1,000 and end up with $5,000 after 10 years. What was the interest rate? (Enter the answer in percentage format to two decimal places without the % sign -> 9.33 and not 9.33% or .09)

Back 128

17.46

Front 129

The single period TVM lump sum formula can be used to solve for PV, FV, or r. Which is the correct formula?

Back 129

FV = PV(1+r)

Front 130

How many years will it take to double your $10,000 investment if you can earn a 4% annual return? (round it to 2 numbers after the decimal point)

Back 130

17.67

Front 131

There is a linear relationship between future values and the number of compounding periods for any present value and non-zero interest rate.

Back 131

False

Front 132

An ordinary (deferred) annuity is an annuity for which the cash flow occurs at the beginning of each period.

Back 132

False

Front 133

You deposit $500 into an investment account each year for 10 years and earn 8% interest per year. How much will you end up with after the 10 years? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 133

7,243.28

Front 134

You deposit $500 into an investment account each year for 10 years and earn 8% interest per year. How much will you end up with after the 10 years?

Back 134

(500/0.08)*(1.08^10-1)

Front 135

You start out with $10,000 in an account. How much must you contribute at the beginning of each year in order to end up with $100,000 after 20 years if you earn 3% per year? Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23”)

Back 135

2,960.6

Front 136

The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate. By approximately how much would the value change if these were annuities due?

Back 136

An increase of $61.

Front 137

How much more is a perpetuity of $1,000 worth than an annuity of the same amount for 20 years? Assume a 10% interest rate and cash flows at end of period. (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 137

1,486.43

Front 138

You plan to deposit $13,000 in a bank account at the end of the year. Next year you will deposit $10,000, then $10,000 in the third year, and $4000 in the fourth year. What is the PV if the discount rate is 5%? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 138

33,380.43

Front 139

You receive $10,000 now for an investment that will return cash flows of $2,000 per year for five years and then $3,000 per year for another 5 years. What is the present value if the discount rate is 5%? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 139

28,835.73

Front 140

Suppose you have an opportunity to invest $2,000 today at an 8% annual percentage rate (APR) with quarterly compounding. What is the value of your investment after 1 year? (Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23)

Back 140

2,164.86

Front 141

Other things being equal, the more frequent the compounding period, the:

Back 141

higher the future value

Front 142

You owe $10,000 on a credit card with an interest rate of 15%, which is compounded monthly. If you make payments of $1,000 per month, how many months will it take you to pay off your debt? (Enter the answer to 2 decimal places)

Back 142

10.75

Front 143

You just borrowed $50,000 to buy a car. You will pay back this loan with monthly payments of $1,610 for 4 years. What is the APR (annual percentage rate) on this loan? (Enter the answer in percentage format to two decimal places without the % sign -> 9.32 and not 9.32% or .0932” )

Back 143

23.27

Front 144

What is the effective annual rate associated with an 8% nominal annual rate (r = 0.08) when interest is compounded

Back 144

(1) annually: 8.00

(2) semiannually: 8.16

(3) quarterly: 8.24

(4)monthly: 8.30

Front 145

Other things being equal, the more frequent the compounding period, the:

Back 145

higher the effective annual interest rate.

Front 146

Suppose you are going to purchase a house.

You negotiate a great deal and your bank agrees to lend you money for 30 years at 4% APR (annual percentage rate).

HINT: For the monthly interest rate do 4/12 (4% divided by 12 months) and answer to 6 decimal places. Enter the answer in dollar format without $ sign or thousands comma -> 3519.23 and not $3,519.23 or 3,519.23

The house costs $300,000 and you pay 20% down and finance the rest.

Compute (round it to 2 numbers after the decimal point for the answer inputs but not for interim steps)

Back 146

(1) Monthly payment: 1145.80

(2) The interest payment portion of 1st Monthly payment: 800.00

(3) The principal payment portion of the 1st Monthly payment: 345.80

(4) Balance after the 1st payment: 239654.20

Front 147

How long must one wait (to the nearest year) for an initial investment of $1,000 to triple in value if the investment earns 8% compounded annually?

Back 147

14

Front 148

What is the future value of $10,000 deposited today in a bank account that pays 5.6% interest rate after 5 years? (Enter the answer in dollar format to two decimal places without the $ sign -> 1009.32 and not $1,009.32 )

Back 148

13,131.66

Front 149

How much can be accumulated for retirement if $2000 is deposited annually, beginning one year from today, and the account earns 7% interest compounded annually for 24 years?

Back 149

116,353.34

Front 150

What will be the monthly payment on a home mortgage of $175,000 at 3.25% interest, to be amortized over 15 years?

(for monthly interest rate -> 3.25/12 and 6 decimal places)

Back 150

1,229.67

Front 151

A perpetuity of $7,255 per year is said to offer a 6% interest rate. What is its present value?

Back 151

120,916.67

Front 152

What is the future value of $533 to be deposited today into an account paying 8.0% compounded semi-annually for two years?

Back 152

623.53

Front 153

You just won a lottery that promises to pay you $1 million exactly 10 years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment. What is the least you will sell your claim for if you could earn 7.76 % on similar-risk investments during the 10-year period?

Back 153

473,613.61

Front 154

A car dealer offers payments of $522.59 per month for 48 months on a $25,000 car after making a $4,000 down payment. What is the loan’s APR? (in % terms)

Back 154

9

Front 155

Today, Bruce and Brenda each have $150,000 in an investment account. No other contributions will be made to their investment accounts. Both have the same goal: They each want their account to reach $1 million, at which time each will retire. Bruce has his money invested in risk-free securities with an expected annual return of 5 percent. Brenda has her money invested in a stock fund with an expected annual return of 10 percent. How many years after Brenda retires will Bruce retire?

Back 155

19

Front 156

What is the future value of a five-year ordinary annuity of $1,000 per year if the interest rate is 7.26%? Hint: solve for year 5.

Back 156

5,780.65

Front 157

What is the present value of a perpetuity that offers to pay $100 next year and every year after the payment grows at 4.3%. Investments with similar risk are offering an 8% annual return.

Back 157

2,702.7

Front 158

Your bank is offering a certificate of deposit with an APR of 5.69% compounded monthly. What is the effective annual rate?

Back 158

5.84

Front 159

What is the loan balance (in dollars) after the third payment, of a 5 year loan of $100,000 with an APR of 10% and annual payments?

Back 159

45,783.03