BU 340 BU340 EXAM 4 AND 5 ANSWERS - ASHWORTH
BU340 Managerial Finance I Exam 4&5 Answers
Your parents have an investment portfolio of $400,000, and they wish to take out cash flows of $50,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.5%? Use a calculator to determine your answer.
Question options:
The main variables of the TVM equation are:
Question options:
|
|
|
|
present value, future value, time, interest rate, and payment.
|
|
|
|
|
|
present value, future value, perpetuity, interest rate, and payment.
|
|
|
|
|
|
present value, future value, time, annuity, and interest rate.
|
|
|
|
|
|
present value, future value, perpetuity, interest rate, and principal.
|
|
|
|
|
|
Ian currently has $67,000 in an interest-earning account. From this account, he wishes to make 20 year-end payments of $5,000 each. What annual rate of return must Ian make on this account to meet his objective?
Question options:
You borrow $100,000 at an annual rate of 8% for a 10-year period and repay the interest of $8,000 at the end of each year prior to maturity. You make the final payment of $108,000 at the end of 10 years. What type of loan have you just repaid?
Question options:
You borrow $100,000 at an annual rate of 8% for a 10-year period and repay with 10 equal annual end-of-the-year payments of $14,902.95. You have just repaid what type of loan?
Question options:
What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%, and the cash flows of $50 last for 20 years?
Question options:
|
|
|
|
|
|
|
|
|
|
|
|
|
This question cannot be answered because we have an interest rate of 0%.
|
|
|
|
|
|
Dominique's department at work places $10,000 every year-end into an account earning 5%. The money is used when the corporate office fails to fully finance your profitable projects. The money has not been touched since a deposit was made exactly five years ago. If the most recent deposit was made today, how much money is currently in the account?
Question options:
An annuity is a series of:
Question options:
|
|
|
|
variable cash payments at regular intervals across time.
|
|
|
|
|
|
equal cash payments at regular intervals across time.
|
|
|
|
|
|
variable cash payments at different intervals across time.
|
|
|
|
|
|
equal cash payments at different intervals across time.
|
|
|
|
|
|
If for the next 40 years you place $3,000 in equal year-end deposits into an account earning 8% per year, how much money will be in the account at the end of that time period?
Question options:
You have saved $47,000 for college and wish to use $15,000 per year. If you use the money as an ordinary annuity and earn 6.15% on your investment, how many years will your annuity last? Use a calculator to determine your answer.
Question options:
Joyce just won the Publisher's Clearing House Sweepstakes and the right to 20 after-tax ordinary annuity cash flows of $163,291.18. Assuming a discount rate of 7.5%, what is the present value of her lottery winnings? Use a calculator to determine your answer.
Question options:
|
|
|
|
|
|
|
|
|
|
|
|
|
There is not enough information to answer this question.
|
|
|
|
|
|
Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. How large is the payment at the end of Year 10 if the crane is financed at a rate of 8.5% as a discount loan?
Question options:
|
|
|
|
|
|
|
|
|
|
|
|
|
There is not enough information to answer this question.
|
|
|
|
|
|
Jane decides to save by depositing $1000 into an account each year for 5 years. The first deposit would occur at the end of the first year. The effective annual rate on the account is 2%. The balance after 5 years would be:
Question options:
Your employer agreed to place year-end deposits of $1,000, $2,000, and $3,000 into your retirement account. The $1,000 deposit will be one year from today, the $2,000 deposit two years from today, and the $3,000 deposit three years from today. If your account earns 5% per year, how much money will you have in the account at the end of Year 3 when the last deposit is made?
Question options:
What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?
Question options:
You have just won the Reader's Digest lottery of $5,000 per year for 20 years, with the first payment today followed by 19 more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings?
Question options:
The furniture store offers you "no money down" on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $1,000 each with the first payment to be made one year from today. If the discount rate is 6%, what is the present value of the furniture payments?
Question options:
When you pay off the principal and all of the interest at one time at the maturity date of the loan, we call this type of loan a(n):
Question options:
A/An ________ is a series of equal end-of-the-period cash flows.
Question options:
What is the future value in Year 12 of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4% per year?
Question options:
Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5%. What is your investment worth in one year?
Question options:
Which of the following statements is TRUE?
Question options:
|
|
|
|
On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the EAR rate.
|
|
|
|
|
|
On many calculators the TVM key for interest is Y/I; this is Interest per Year, or the APR rate.
|
|
|
|
|
|
On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the APR rate.
|
|
|
|
|
|
On many calculators the TVM key for a period is I/Y.
|
|
|
|
|
|
Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year:
Question options:
|
|
|
|
you will be able to consume fewer goods
|
|
|
|
|
|
you will be able to buy the same amount of goods or services
|
|
|
|
|
|
you will be able to buy fewer goods or services
|
|
|
|
|
|
you will be able to buy more goods or services
|
|
|
|
|
|
The phrase "price to rent money" is sometimes used to refer to:
Question options:
The typical payments on a consumer loan are made at:
Question options:
|
|
|
|
|
|
|
|
|
|
|
|
|
the beginning of each month
|
|
|
|
|
|
Suppose you deposit money in a certificate of deposit (CD) at a bank. Which of the following statements is TRUE?
Question options:
|
|
|
|
The bank is borrowing money from you without a promise to repay that money with interest.
|
|
|
|
|
|
The bank is lending money to you with a promise to repay that money with interest.
|
|
|
|
|
|
The bank is technically renting money from you with a promise to repay that money with interest.
|
|
|
|
|
|
The bank is lending money to you, but not borrowing money from you.
|
|
|
|
|
|
Assume you just bought a new home and now have a mortgage. The amount of the principal is $150,000, the loan is at 5% APR, and the monthly payments are spread out over 30 years. What is the loan payment? Use a calculator to determine your answer.
Question options:
Which of the following statements is TRUE if you increase your monthly payment above the required loan payment?
Question options:
|
|
|
|
The extra portion of the payment does not go to the principal.
|
|
|
|
|
|
You can significantly increase the number of payments needed to pay off the loan.
|
|
|
|
|
|
The extra portion of the payment increases the principal.
|
|
|
|
|
|
You can significantly reduce the number of payments needed to pay off the loan.
|
|
|
|
|
|
The ________ compensates the investor for the additional risk that the loan will not be repaid in full.
Question options:
What is the EAR if the APR is 5% and compounding is quarterly?
Question options:
Nominal interest rates are the sum of two major components. These components are:
Question options:
|
|
|
|
the real interest rate and expected inflation.
|
|
|
|
|
|
the risk-free rate and expected inflation.
|
|
|
|
|
|
the real interest rate and default premium.
|
|
|
|
|
|
the real interest rate and the T-bill rate.
|
|
|
|
|
|
When interest rates are stated or given for loan repayments, it is assumed that they are ________ unless specifically stated otherwise.
Question options:
We can write the true relationship between the nominal interest rate, the real rate and expected inflation as:
Question options:
|
|
|
|
(1+r)=(1+r)×(1+h*){"version":"1.1","math":"<math xmlns="http://www.w3.org/1998/Math/MathML"><mo>(</mo><mn>1</mn><mo>+</mo><mi>r</mi><mo>)</mo><mo>=</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>r</mi><mo>)</mo><mo>×</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>h</mi><mo>*</mo><mo>)</mo></math>"}
|
|
|
|
|
|
r=(1+r*)×(1+h)−1{"version":"1.1","math":"<math xmlns="http://www.w3.org/1998/Math/MathML"><mi>r</mi><mo>=</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>r</mi><mo>*</mo><mo>)</mo><mo>×</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>h</mi><mo>)</mo><mo>-</mo><mn>1</mn></math>"}
|
|
|
|
|
|
r*=(1+r)×(1+h)−1{"version":"1.1","math":"<math xmlns="http://www.w3.org/1998/Math/MathML"><mi>r</mi><mo>*</mo><mo>=</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>r</mi><mo>)</mo><mo>×</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>h</mi><mo>)</mo><mo>-</mo><mn>1</mn></math>"}
|
|
|
|
|
|
r=(1+r*)×(1+h)+1{"version":"1.1","math":"<math xmlns="http://www.w3.org/1998/Math/MathML"><mi>r</mi><mo>=</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>r</mi><mo>*</mo><mo>)</mo><mo>×</mo><mo>(</mo><mn>1</mn><mo>+</mo><mi>h</mi><mo>)</mo><mo>+</mo><mn>1</mn></math>"}
|
|
|
|
|
|
|
You put down 20% on a home with a purchase price of $300,000. The down payment is thus $60,000, leaving a balance owed of $240,000. The bank will loan you the remaining balance at 4.28% APR. You will make annual payments with a 20-year payment schedule. What is the annual annuity payment under this schedule?
Question options:
A company selling a bond is ________ money.
Question options:
The frequency of default on a home loan is ________ the frequency of default on a credit card.
Question options:
James is a rational investor wishing to maximize his return over a 20-year period. The current yield curve is inverted with one-year rates at 5% and 20-year rates at 3.5%. James will invest in the lower-rate 20-year bonds if:
Question options:
|
|
|
|
he thinks rates will fall in the future and locking in long-term rates today may provide the highest long-run average return.
|
|
|
|
|
|
he thinks rates will rise in the future and locking in long-term rates today may provide the lowest long-run average return.
|
|
|
|
|
|
he thinks rates will remain flat at 5% in the future and locking in long-term rates today will prevent him from appearing greedy to those without this investment opportunity.
|
|
|
|
|
|
James has no idea what to do and should just skip this question.
|
|
|
|
|
|
Assume that Don is 45 years old and has 20 years for saving until he retires. He expects an APR of 8.5% on his investments. How much does he need to save if he puts money away annually in equal end-of-the-year amounts to achieve a future value of $1 million in 20 years' time?
Question options:
The number of periods for a consumer loan (n) is equal to the:
Question options:
|
|
|
|
number of years times compounding periods per year.
|
|
|
|
|
|
|
|
|
number of years in a period.
|
|
|
|
|
|
number of compounding periods.
|
|
|
|
|
|
Suppose that over the life of the loan, the total interest expense for a monthly loan is $17,000, while the total interest payment for an annual loan is $19,000. Which of the below statements is FALSE?
Question options:
|
|
|
|
The difference reflects the reduction of the principal each month versus the annual reduction of the principal.
|
|
|
|
|
|
The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is higher.
|
|
|
|
|
|
Reducing principal at a slower pace reduces the overall interest paid on a loan.
|
|
|
|
|
|
Reducing principal at a slower pace increases the overall interest paid on a loan.
|
|
Comments
Post a Comment