Question 1

What is the annual percentage rate on a loan that charges interest of 1.65 percent per quarter?

Accepted Answer

A) 6.50 percent 
B) 6.45 percent 
C) 6.54 percent 
D) 6.60 percent 
E) 6.72 percent 
A) 6.50 percent 
B) 6.45 percent 
C) 6.54 percent 
D) 6.60 percent 
E) 6.72 percent

Question 2

If you invest $2,500 today,an investment guarantees you will have $3,600 four years from today.What rate of interest will you earn?

Accepted Answer

A) 8.72 percent 
B) 9.03 percent 
C) 8.68 percent 
D) 9.39 percent 
E) 9.54 percent 
A) 8.72 percent 
B) 9.03 percent 
C) 8.68 percent 
D) 9.39 percent 
E) 9.54 percent

Question 3

Uptown Industries just decided to save $3,000 a quarter for the next three years.The money will earn 2.75 percent,compounded quarterly,and the first deposit will be made today.If the company had wanted to deposit one lump sum today,rather than make quarterly deposits,how much would it have had to deposit to have the same amount saved at the end of the three years?

Accepted Answer

A) $34,441.56 
B) $34,678.35 
C) $33,428.87 
D) $33,687.23 
E) $34,998.01 
A) $34,441.56 
B) $34,678.35 
C) $33,428.87 
D) $33,687.23 
E) $34,998.01

Question 4

Fred purchased a city lot for $39,900.That lot has appreciated at 6.5 percent annually and is now valued at $287,400.How long has Fred owned this lot?

Accepted Answer

A) 26.87 years 
B) 37.97 years 
C) 33.09 years 
D) 31.35 years 
E) 29.11 years 
A) 26.87 years 
B) 37.97 years 
C) 33.09 years 
D) 31.35 years 
E) 29.11 years

Question 5

Jeanette expects to live 30 years after she retires.At the end of the first year of her retirement,she wants to withdraw $35,000 from her savings.Each year thereafter,she wants to increase her annual withdrawal by 3.5 percent.If she can earn 5.5 percent on her savings,how much does she need to have in retirement savings on the day she retires?

Accepted Answer

A) $862,001.34 
B) $648,909.18 
C) $764,458.87 
D) $919,028.56 
E) $832,004.01 
A) $862,001.34 
B) $648,909.18 
C) $764,458.87 
D) $919,028.56 
E) $832,004.01

Question 6

Janet saves $3,000 a year at an interest rate of 4.2 percent.What will her savings be worth at the end of 35 years?

Accepted Answer

A) $229,317.82 
B) $230,702.57 
C) $230,040.06 
D) $234,868.92 
E) $236,063.66 
A) $229,317.82 
B) $230,702.57 
C) $230,040.06 
D) $234,868.92 
E) $236,063.66

Question 7

Marcos will receive an annuity payment of $2,500,payable every two years,for the next ten years.The next payment is due two years from today.What is the present value of this annuity at a discount rate of 5 percent?

Accepted Answer

A) $10,466.67 
B) $11,221.08 
C) $9,416.75 
D) $10,052.48 
E) $8,949.60 
A) $10,466.67 
B) $11,221.08 
C) $9,416.75 
D) $10,052.48 
E) $8,949.60

Question 8

You want to save an equal amount each year for the next 38 years,at which time you will retire.What amount of annual savings are needed if you desire a retirement income of $55,000 a year for 25 years and earn 7.5 percent,compounded annually?

Accepted Answer

A) $3,333.33 
B) $2,640.85 
C) $3,146.32 
D) $2,889.04 
E) $3,406.16 
A) $3,333.33 
B) $2,640.85 
C) $3,146.32 
D) $2,889.04 
E) $3,406.16

Question 9

Starting today,Alicia is going to contribute $100 a month to her retirement account.Her employer matches her contribution by 50 percent.If these contributions remain constant,and she earns a monthly rate of .55 percent,how much will her savings be worth 40 years from now?

Accepted Answer

A) $399,459.44 
B) $300,456.74 
C) $349,981.21 
D) $299,189.16 
E) $354,087.88 
A) $399,459.44 
B) $300,456.74 
C) $349,981.21 
D) $299,189.16 
E) $354,087.88

Question 10

Tracie will receive payments of $550 a month for ten years.What are these payments worth today at a discount rate of 6 percent,compounded monthly?

Accepted Answer

A) $49,540.40 
B) $51,523.74 
C) $53,737.08 
D) $49,757.69 
E) $48,808.17 
A) $49,540.40 
B) $51,523.74 
C) $53,737.08 
D) $49,757.69 
E) $48,808.17

Question 11

Stu can purchase a house today for $110,000,including the cost of some minor repairs.He expects to be able to resell it in one year for $129,000 after cleaning up the property.At a discount rate of 5.5 percent,what is the expected net present value of this purchase opportunity?

Accepted Answer

A) $13,001.61 
B) $12,487.43 
C) $12,274.88 
D) $9,208.18 
E) $11,311.02 
A) $13,001.61 
B) $12,487.43 
C) $12,274.88 
D) $9,208.18 
E) $11,311.02

Question 12

What is the future value of $845 a year for seven years at an interest rate of 11.3 percent?

Accepted Answer

A) $6,683.95 
B) $6,075.69 
C) $8,343.51 
D) $8,001.38 
E) $8,801.91 
A) $6,683.95 
B) $6,075.69 
C) $8,343.51 
D) $8,001.38 
E) $8,801.91

Question 13

A preferred stock pays an annual dividend of $6.50 a share and has an annual rate of return of 7.35 percent.What is the stock price?

Accepted Answer

A) $74.50 
B) $71.78 
C) $92.09 
D) $88.44 
E) $77.78 
A) $74.50 
B) $71.78 
C) $92.09 
D) $88.44 
E) $77.78

Question 14

Assume you graduate with $31,300 in student loans at an interest rate of 5.25 percent,compounded monthly.If you want to have this debt paid in full within three years,how much must you pay each month?

Accepted Answer

A) $871.30 
B) $873.65 
C) $876.79 
D) $941.61 
E) $980.40 
A) $871.30 
B) $873.65 
C) $876.79 
D) $941.61 
E) $980.40

Question 15

Thirty-five years ago,your father invested $2,000.Today that investment is worth $98,407.What annual rate of return has been earned on this investment?

Accepted Answer

A) 10.94 percent 
B) 11.33 percent 
C) 10.50 percent 
D) 11.77 percent 
E) 9.99 percent 
A) 10.94 percent 
B) 11.33 percent 
C) 10.50 percent 
D) 11.77 percent 
E) 9.99 percent

Question 16

Explain the net present value formula and also explain what the net present value represents.
NPV = −Cost + PV

Accepted Answer

The net present value formula computes N

Exam 4: Discounted Cash Flow Valuation

What is the annual percentage rate on a loan that charges interest of 1.65 percent per quarter?

If you invest $2,500 today,an investment guarantees you will have $3,600 four years from today.What rate of interest will you earn?

Fred purchased a city lot for $39,900.That lot has appreciated at 6.5 percent annually and is now valued at $287,400.How long has Fred owned this lot?

Janet saves $3,000 a year at an interest rate of 4.2 percent.What will her savings be worth at the end of 35 years?

Marcos will receive an annuity payment of $2,500,payable every two years,for the next ten years.The next payment is due two years from today.What is the present value of this annuity at a discount rate of 5 percent?

You want to save an equal amount each year for the next 38 years,at which time you will retire.What amount of annual savings are needed if you desire a retirement income of $55,000 a year for 25 years and earn 7.5 percent,compounded annually?

Starting today,Alicia is going to contribute $100 a month to her retirement account.Her employer matches her contribution by 50 percent.If these contributions remain constant,and she earns a monthly rate of .55 percent,how much will her savings be worth 40 years from now?

Tracie will receive payments of $550 a month for ten years.What are these payments worth today at a discount rate of 6 percent,compounded monthly?

Stu can purchase a house today for $110,000,including the cost of some minor repairs.He expects to be able to resell it in one year for $129,000 after cleaning up the property.At a discount rate of 5.5 percent,what is the expected net present value of this purchase opportunity?

What is the future value of $845 a year for seven years at an interest rate of 11.3 percent?

A preferred stock pays an annual dividend of $6.50 a share and has an annual rate of return of 7.35 percent.What is the stock price?

Assume you graduate with $31,300 in student loans at an interest rate of 5.25 percent,compounded monthly.If you want to have this debt paid in full within three years,how much must you pay each month?

Thirty-five years ago,your father invested $2,000.Today that investment is worth $98,407.What annual rate of return has been earned on this investment?

Explain the net present value formula and also explain what the net present value represents. NPV = −Cost + PV

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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