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Finance Exam 2- Chapter 5
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A company's 2005 sales were $100 million. If sales grow at 8% per year, how large will they be 10 years later, in 2015, in millions?
a. $190.49
b. $225.54
c. $188.32
d. $201.15
e. $215.89
e. $215.89
Suppose a U.S. government bond promises to pay $2,249.73 three years from now. If the going interest rate on 3-year government bonds is 6%, how much is the bond worth today?
a. $2,011.87
b. $2,591.45
c. $2,324.89
d. $1,888.92
e. $2,854.13
d. $1,888.92
Sims Inc. earned $1.00 per share in 2000. Five years later, in 2005, it earned $2.00. What was the growth rate in Sims' earnings per share (EPS) over the 5-year period?
a. 10.82%
b. 14.87%
c. 13.61%
d. 14.28%
e. 12.17%
b. 14.87%
You want to buy a condo 5 years from now, and you plan to save $3,000 per year, beginning one year from today. You will deposit the money in an account that pays 6% interest. How much will you have just after you make the 5th deposit, 5 years from now?
a. $14,764.40
b. $13,431.83
c. $16,911.28
d. $17,843.15
e. $15,119.76
c. $16,911. 28
You have a chance to buy an annuity that pays $1,000 at the end of each year for 5 years. You could earn 6% on your money in other investments with equal risk. What is the most you should pay for the annuity?
a. $3,324.89
b. $2,591.45
c. $4,212.36
d. $2,011.87
e. $3,854.13
c. $4,212.36
An investment promises the following cash flow stream: $1,000 at Time 0; $2,000 at the end of Year 1 (or at T=1); $3,000 at the end of Year 2; and $5,000 at the end of Year 3. At a discount rate of 5%, what is the present value of the cash flow stream?
a. $9,324.89
b. $9,591.45
c. $9,945.04
d. $9,011.87
e. $9,854.13
c. $9,945.04
What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded semiannually?
a. $2,854.13
b. $2,781.45
c. $2,324.89
d. $2,011.87
e. $2,530.64
e. $2,530.64
What's the present value of $2,000 discounted back 3 years if the appropriate interest rate is 8%, compounded semiannually?
a. $1,110.34
b. $1,580.63
c. $1,413.68
d. $1,976.84
e. $1,349.15
b. $1,580.63
What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded monthly?
a. $2,854.13
b. $2,491.45
c. $2,324.89
d. $2,011.87
e. $2,540.47
e. $2,540.47
What's the present value of $2,000 discounted back 3 years if the appropriate interest rate is 8%, compounded monthly?
a. $1,491.45
b. $1,574.51
c. $1,324.89
d. $1,011.87
e. $1,854.13
b. $1,574.51
Suppose you borrowed $25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?
a. $7,691.45
b. $7,548.02
c. $7,324.89
d. $7,011.87
e. $7,854.13
b. $7,548.02
You just deposited $5,000 in a bank account that pays a 12% nominal interest rate, compounded monthly. If you also add another $10,000 to the account one year (12 months) from now and another $15,000 to the account two years from now, how much will be in the account three years (36 months) from now?
a. $36,753.57
b. $33,431.83
c. $34,764.40
d. $37,843.15
e. $35,119.76
a. $36,753.57
Which of the following bank accounts has the highest effective annual return?
a. An account that pays 10% nominal interest with monthly compounding.
b. An account that pays 10% nominal interest with daily compounding.
c. An account that pays 10% nominal interest with annual compounding.
d. An account that pays 9% nominal interest with daily compounding.
e. An account that pays 9% nominal interest with monthly compounding.
b. An account that pays 10% nominal interest with daily compounding.
Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?
a. The periodic rate of interest is 2% and the effective rate of interest is 4%.
b. The periodic rate of interest is 8% and the effective rate of interest is greater than 8%.
c. The periodic rate of interest is 4% and the effective rate of interest is 8%.
d. The periodic rate of interest is 8% and the effective rate of interest is 8%.
e. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
e. The periodic rate of interest is 2% and the effective rate of interest is greater than 8%.
Which of the following statements regarding a 30-year (360-month) $100,000 fixed-rate mortgage is CORRECT? (Ignore all taxes and transactions costs.)
a. The remaining balance after three years will be $100,000 less the total amount of interest paid during the first 36 months.
b. The proportion of the monthly payment that goes towards repayment of principal will be higher 10 years from now than it will be this year.
c. The monthly payment on the mortgage will steadily decline over time.
d. The outstanding balance gets paid off at a faster rate early in a loan's life, rather than later.
e. Because it is a fixed rate mortgage, the amount paid in interest per payment is constant.
b. The proportion of the monthly payment that goes towards repayment of principal will be higher 10 years from now than it will be this year.
South Penn Trucking is financing a new truck with a loan of $10,000 to be repaid in 5 annual end-of-year installments of $2,504.56. What annual interest rate is the company paying?
a. 7%
b. 8%
c. 9%
d. 10%
e. 11%
b. 8%
If a 5-year ordinary annuity has a present value of $1,000, and if the interest rate is 10%, what is the amount of each annuity payment?
a. $240.42
b. $263.80
c. $300.20
d. $315.38
e. $346.87
b. $263.80
If $100 is placed in an account earning a nominal 4%, compounded quarterly, what will it be worth in 5 years?
a. $122.02
b. $105.10
c. $135.41
d. $120.90
e. $117.48
a. $122.02
A real estate investment has the following expected cash flows:
Year Cash Flows
1 $10,000
2 25,000
3 50,000
4 35,000
If the discount rate is 8%, what is the investment's present value?
a. $103,799
b. $ 96,110
c. $ 95,353
d. $120,000
e. $ 77,592
b. $ 96,110
You deposited $1,000 in a savings account that pays 8% interest, compounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue school, so you close out your account. How much money will you receive?
a. $1,171
b. $1,126
c. $1,082
d. $1,163
e. $1,008
b. $1,126
Steven just deposited $10,000 in a bank account that has a 12% nominal interest rate, compounded monthly. Steven also plans to contribute another $10,000 to the account one year (12 months) from now and another $20,000 to the account two years from now. How much will be in the account three years (36 months) from now?
a. $57,231
b. $48,993
c. $50,971
d. $49,542
e. $49,130
d. $49,542
What is the present value of the following cash flows, if the discount rate is 12%?
0 1 2 3 4 5 6 Periods
| | | | | | |
0 1 2,000 2,000 2,000 0 -2,000
a. $3,277
b. $4,804
c. $5,302
d. $4,289
e. $2,804
a. $3,277
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