FIN315 Business Finance I Exam 2
Question 1
A local brokerage firm is offering a zero coupon certificate of deposit for $10,000. At maturity, three years from now, the investor will receive $14,000. What is the rate of return on this investment?
Answer
14 percent 

13 percent 

12 percent 

11 percent 
Question 2
Zheng Sen wishes to accumulate $1 million by the end of 20 years by making equal annual endofyear deposits over the next 20 years. If Zheng Sen can earn 10 percent on his investments, how much must he deposit at the end of each year?
Answer
$ 14,900 

$ 50,000 

$117,453 

$17,460 
Question 3
Colin would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?
Answer
$1,862 

$2,457 

$3,000 

$2,234 
Question 4
The future value of $200 received today and deposited at 8 percent compounded semiannually for three years is
Answer
$380. 

$158. 

$253. 

$252. 
Question 5
If the required return is less than the coupon rate, a bond will sell at
Answer
par. 

a discount. 

a premium. 

book value. 
Question 6
Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?
Answer
$19,292 

$14,938 

$40,000 

$144,104 
Question 7
The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately
Answer
5%. 

7%. 

30%. 

None of these. 
Question 8
The present value of a $25,000 perpetuity at a 14 percent discount rate is
Answer
$178,571. 

$285,000. 

$350,000. 

$219,298. 

Question 9 Hewitt Packing Company has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate. The issue has ten years remaining to the maturity date. Bonds of similar risk are currently selling to yield a 12 percent rate of return. The current value of each Hewitt bond is ________. Answer

Question 10
The future value of a $2,000 annuity due deposited at 8 percent compounded annually for each of the next 10 years is
Answer
$28,974. 

$31,292. 

$14,494. 

$13,420. 
Question 11
What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?
Answer
8.5 percent 

9.4 percent 

12.0 percent 

13.2 percent 

Question 12 Tangshan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industries bond is ________. Answer

Question 13
Find the present value
of the following stream of cash flows, assuming that the firm's opportunity
cost is 25 percent.
Answer
$27,168 

$35,200 

$34,000 

$32,500 
Question 14
A firm has an issue of $1,000 par value bonds with a 9 percent stated interest rate outstanding. The issue pays interest annually and has 20 years remaining to its maturity date. If bonds of similar risk are currently earning 11 percent, the firm's bond will sell for ________ today.
Answer
$1,000 

$716.67 

$840.67 

$1,123.33 
Question 15
The present value of $200 to be received 10 years from today, assuming an opportunity cost of 10 percent, is
Answer
$ 50. 

$200. 

$518. 

$ 77. 
Question 16
Alexis owns stock in a company which has consistently paid a growing dividend over the last 10 years. The first year Alexis owned the stock, she received $4.50 per share and in the 10th year, she received $4.92 per share. What is the growth rate of the dividends over the last 10 years?
Answer
5 percent 

4 percent 

2 percent 

1 percent 
Question 17
The future value of $100 received today and deposited at 6 percent for four years is
Answer
$126. 

$ 79. 

$124. 

$116. 
Question 18
Aunt Tilly borrows $3,500 from the bank at 12 percent annually compounded interest to be repaid in four equal annual installments. The interest paid in the first year is
Answer
$ 152. 

$ 277. 

$ 420. 

$1,152. 
Question 19
How long would it take for Nico to save an adequate amount for retirement if he deposits $40,000 per year into an account beginning one year from today that pays 12 percent per year if he wishes to have a total of $1,000,000 at retirement?
Answer
15.0 years 

15.5 years 

14.5 years 

16.5 years 
Question 20
Nico makes annual endofyear payments of $5,043.71 on a fouryear loan with an interest rate of 13 percent. The original principal amount was
Answer
$24,462. 

$15,000. 

$ 3,092. 

$20,175. 

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