Question 1

Wildwoods,Inc.earned $1.50 per share five years ago.Its earnings this year were $3.20.What was the growth rate in earnings per share (EPS)over the 5-year period?

Accepted Answer

A)  15.54% 
B)  16.36% 
C)  17.18% 
D)  18.04% 
E)  18.94% 
A)  15.54% 
B)  16.36% 
C)  17.18% 
D)  18.04% 
E)  18.94%

Question 2

Suppose you earned a $275,000 bonus this year and invested it at 8.25% per year.How much could you withdraw at the end of each of the next 20 years?

Accepted Answer

A)  $28,532 
B)  $29,959 
C)  $31,457 
D)  $33,030 
E)  $34,681 
A)  $28,532 
B)  $29,959 
C)  $31,457 
D)  $33,030 
E)  $34,681

Question 3

When a loan is amortized,a relatively high percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage declines in the loan's later years.

Accepted Answer

A) True 
 B)False

Question 4

Your aunt wants to retire and has $375,000.She expects to live for another 25 years,and she also expects to earn 7.5% on her invested funds.How much could she withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Accepted Answer

A)  $28,243.21 
B)  $29,729.70 
C)  $31,294.42 
D)  $32,859.14 
E)  $34,502.10 
A)  $28,243.21 
B)  $29,729.70 
C)  $31,294.42 
D)  $32,859.14 
E)  $34,502.10

Question 5

Cochrane Associate's net sales last year were $525 million.If sales grow at 7.5% per year,how large (in millions)will they be 8 years later?

Accepted Answer

A)  $845.03 
B)  $889.51 
C)  $936.33 
D)  $983.14 
E)  $1,032.30 
A)  $845.03 
B)  $889.51 
C)  $936.33 
D)  $983.14 
E)  $1,032.30

Question 6

A $250,000 loan is to be amortized over 8 years,with annual end-of-year payments.Which of these statements is CORRECT?

Accepted Answer

A)  The proportion of interest versus principal repayment would be the same for each of the 8 payments. 
B)  The annual payments would be larger if the interest rate were lower. 
C)  If the loan were amortized over 10 years rather than 8 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 8-year amortization plan. 
D)  The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. 
E)  The last payment would have a higher proportion of interest than the first payment. 
A)  The proportion of interest versus principal repayment would be the same for each of the 8 payments. 
B)  The annual payments would be larger if the interest rate were lower. 
C)  If the loan were amortized over 10 years rather than 8 years,and if the interest rate were the same in either case,the first payment would include more dollars of interest under the 8-year amortization plan. 
D)  The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. 
E)  The last payment would have a higher proportion of interest than the first payment.

Question 7

Your bank offers a savings account that pays 3.5% interest,compounded annually.If you invest $1,000 in the account,then how much will it be worth at the end of 25 years?

Accepted Answer

A)  $2,245.08 
B)  $2,363.24 
C)  $2,481.41 
D)  $2,605.48 
E)  $2,735.75 
A)  $2,245.08 
B)  $2,363.24 
C)  $2,481.41 
D)  $2,605.48 
E)  $2,735.75

Question 8

How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

Accepted Answer

A)  $591.09 
B)  $622.20 
C)  $654.95 
D)  $689.42 
E)  $723.89 
A)  $591.09 
B)  $622.20 
C)  $654.95 
D)  $689.42 
E)  $723.89

Question 9

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the greater the percentage of the payment that will be a repayment of principal.

Accepted Answer

A) True 
 B)False

Question 10

Your bank account pays an 8% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

Accepted Answer

A)  The periodic rate of interest is 8% and the effective rate of interest is also 8%. 
B)  The periodic rate of interest is 2% and the effective rate of interest is 4%. 
C)  The periodic rate of interest is 8% and the effective rate of interest is greater than 8%. 
D)  The periodic rate of interest is 4% and the effective rate of interest is less than 8%. 
E)  The periodic rate of interest is 2% and the effective rate of interest is greater than 8%. 
A)  The periodic rate of interest is 8% and the effective rate of interest is also 8%. 
B)  The periodic rate of interest is 2% and the effective rate of interest is 4%. 
C)  The periodic rate of interest is 8% and the effective rate of interest is greater than 8%. 
D)  The periodic rate of interest is 4% and the effective rate of interest is less than 8%. 
E)  The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.

Question 11

You have just purchased a U.S.Treasury bond for $747.25.No payments will be made until the bond matures 5 years from now,at which time it will be redeemed for $1,000.What interest rate will you earn on this bond?

Accepted Answer

A)  4.37% 
B)  4.86% 
C)  5.40% 
D)  6.00% 
E)  6.60% 
A)  4.37% 
B)  4.86% 
C)  5.40% 
D)  6.00% 
E)  6.60%

Question 12

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

Accepted Answer

A) True 
 B)False

Question 13

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

Accepted Answer

A) True 
 B)False

Question 14

You are considering two equally risky annuities,each of which pays $25,000 per year for 10 years.Investment ORD is an ordinary (or deferred)annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?

Accepted Answer

A)  If the going rate of interest decreases from 10% to 0%,the difference between the present value of ORD and the present value of DUE would remain constant. 
B)  A rational investor would be willing to pay more for DUE than for ORD,so their market prices should differ. 
C)  The present value of DUE exceeds the present value of ORD,while the future value of DUE is less than the future value of ORD. 
D)  The present value of ORD exceeds the present value of DUE,and the future value of ORD also exceeds the future value of DUE. 
E)  The present value of ORD exceeds the present value of DUE,while the future value of DUE exceeds the future value of ORD. 
A)  If the going rate of interest decreases from 10% to 0%,the difference between the present value of ORD and the present value of DUE would remain constant. 
B)  A rational investor would be willing to pay more for DUE than for ORD,so their market prices should differ. 
C)  The present value of DUE exceeds the present value of ORD,while the future value of DUE is less than the future value of ORD. 
D)  The present value of ORD exceeds the present value of DUE,and the future value of ORD also exceeds the future value of DUE. 
E)  The present value of ORD exceeds the present value of DUE,while the future value of DUE exceeds the future value of ORD.

Question 15

After receiving a reward for information leading to the arrest of a notorious criminal,you are considering investing it in an annuity that pays $5,000 at the end of each year for 20 years.You could earn 5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

Accepted Answer

A)  $50,753 
B)  $53,424 
C)  $56,236 
D)  $59,195 
E)  $62,311 
A)  $50,753 
B)  $53,424 
C)  $56,236 
D)  $59,195 
E)  $62,311

Question 16

What is the present value of the following cash flow stream at a rate of 6.25%?

Accepted Answer

A)  $411.57 
B)  $433.23 
C)  $456.03 
D)  $480.03 
E)  $505.30 
A)  $411.57 
B)  $433.23 
C)  $456.03 
D)  $480.03 
E)  $505.30

Question 17

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $150,000?

Accepted Answer

A)  39.60 
B)  44.00 
C)  48.40 
D)  53.24 
E)  58.57 
A)  39.60 
B)  44.00 
C)  48.40 
D)  53.24 
E)  58.57

Question 18

You have $5,000 invested in a bank that pays 3.8% annually.How long will it take for your funds to triple?

Accepted Answer

A)  23.99 
B)  25.26 
C)  26.58 
D)  27.98 
E)  29.46 
A)  23.99 
B)  25.26 
C)  26.58 
D)  27.98 
E)  29.46

Question 19

Your cousin will sell you his coffee shop for $250,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon)payment of $50,000 at the end of the last month.What would your equal monthly payments be?

Accepted Answer

A)  $4,029.37 
B)  $4,241.44 
C)  $4,464.67 
D)  $4,699.66 
E)  $4,947.01 
A)  $4,029.37 
B)  $4,241.44 
C)  $4,464.67 
D)  $4,699.66 
E)  $4,947.01

Question 20

Suppose you are buying your first home for $145,000,and you have $15,000 for your down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?

Accepted Answer

A)  $741.57 
B)  $780.60 
C)  $821.69 
D)  $862.77 
E)  $905.91 
A)  $741.57 
B)  $780.60 
C)  $821.69 
D)  $862.77 
E)  $905.91

Exam 4: Time Value of Money

Wildwoods,Inc.earned $1.50 per share five years ago.Its earnings this year were $3.20.What was the growth rate in earnings per share (EPS)over the 5-year period?

Suppose you earned a $275,000 bonus this year and invested it at 8.25% per year.How much could you withdraw at the end of each of the next 20 years?

When a loan is amortized,a relatively high percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage declines in the loan's later years.

Your aunt wants to retire and has $375,000.She expects to live for another 25 years,and she also expects to earn 7.5% on her invested funds.How much could she withdraw at the beginning of each of the next 25 years and end up with zero in the account?

Cochrane Associate's net sales last year were $525 million.If sales grow at 7.5% per year,how large (in millions)will they be 8 years later?

A $250,000 loan is to be amortized over 8 years,with annual end-of-year payments.Which of these statements is CORRECT?

Your bank offers a savings account that pays 3.5% interest,compounded annually.If you invest $1,000 in the account,then how much will it be worth at the end of 25 years?

How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

The payment made each period on an amortized loan is constant,and it consists of some interest and some principal.The closer we are to the end of the loan's life,the greater the percentage of the payment that will be a repayment of principal.

Your bank account pays an 8% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

You have just purchased a U.S.Treasury bond for $747.25.No payments will be made until the bond matures 5 years from now,at which time it will be redeemed for $1,000.What interest rate will you earn on this bond?

When a loan is amortized,a relatively low percentage of the payment goes to reduce the outstanding principal in the early years,and the principal repayment's percentage increases in the loan's later years.

Time lines can be constructed in situations where some of the cash flows occur annually but others occur quarterly.

You are considering two equally risky annuities,each of which pays $25,000 per year for 10 years.Investment ORD is an ordinary (or deferred)annuity,while Investment DUE is an annuity due.Which of the following statements is CORRECT?

What is the present value of the following cash flow stream at a rate of 6.25%?

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $150,000?

You have $5,000 invested in a bank that pays 3.8% annually.How long will it take for your funds to triple?

Suppose you are buying your first home for $145,000,and you have $15,000 for your down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Financial Planning and Applications to Corporate Valuation

Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

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