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Full Name Section Student ID # AP/ADMS 3530 3.00 Finance
Midterm Exam – Fall 2023
Friday October 27
th
. 2023; 6:00pm – 8:00pm Exam Version: X
This exam has 30 multiple choice questions and is worth a total of 30 marks. Choose the response that best answers each question. Circle your answers below, and fill in your answers on the bubble sheet using only a pencil (NOT pen). Only the bubble sheet is used to determine your exam score and it will not be returned to you. Ensure that you write both your full name and student ID # at the top of this cover page and on the bubble sheet and the version of your exam (X or Y) on the bubble sheet.
P
l
e
a
se note t
h
e fol
l
o
w
ing points
:
1)
Read the questions carefully and use your time efficiently
.
2) Choose the answers that are closest to yours, because of possible rounding.
3) Keep at least 4 decimal places in your calculations and at least 2 in your final answers and at least 6 decimal places for interest rates.
4)
Unless otherwise stated
, interest rates are annual
, and bonds pay semi-annual coupons and have a face value (or par value) of $1,000
.
5) You may use the back of the exam paper as your scrap paper (no scrap paper is permitted).
6) Instructors and invigilators will not answer questions during the exam.
Page 1
of 12
NUMERICAL QUESTIONS
1. Calculate the PV of an annuity with payments starting in 5 years, which will continue for the subsequent 10 years. The payments are $100 and the discount rate is 5%.
A) $772.17
B) $635.26
C) $542.18
D) $412.04
E) $315.14
Answer: B
PV in 4 years is PMT = $100; I/Y = 5%; N = 10 therefore PV in year 4 = $772.17
PV 0
= $772.17/(1+0.05)
4 = $635.26
2. A perpetuity is starting 4 years from now and has annual payments of $40. Calculate the PV of this perpetuity knowing that the annual discount rate is 9%.
A) $210.12
B) $343.19
C) $435.84
D) $578.70
E) $625.23
Answer: B
Value of the perpetuity in 3 years is $40/0.09 = $444.44
Value now is = $444.44/(1+0.09)
3 = $343.19
3. You will receive the following stream of payments: $100 one year from today, $200 three years from today, and $300 five years from today. Calculate the PV of this stream of payments knowing that the annual discount rate is 7%.
A) $93.46
B) $163.26
C) $213.9
D) $378.36
E) $470.61
Answer: E
PV
1 = $100/1.07 = $93.46; PV
2 = $200/1.07
3 = $163.26; PV
3 = $300/1.07
5
=$213.9
Total $470.61
Page 2
of 12
4. Sara is going to receive $5,000 today as the result of an insurance settlement. In addition, she will receive $10,000 five years from today and $20,000 ten years from today. She plans on saving all of this money and investing it for her retirement. If Sara can earn an average of 10% on her investments, how much will she have in her account
if she retires 20 years from today?
A) $87,145.96
B) $127,284.83
C) $191,414.14
D) $246,072.91
E) $370,008.77
Answer: B
FV at year 20 = $5,000*(1+10%)
20
+ $10,000*(1+10%)
15 + $20,000*(1+10%)
10
= $127,284.83
5. You want to save sufficient funds to generate an annual cash flow of $40,000 at the end of each year for 30 years as retirement income. You currently have no retirement savings, but plan to save an equal amount each year for the next 40 years until your retirement. How much do you need to save each year if you can earn 10% on your savings? (assume all the cash flows are at the end of each year)
A) $1,353.33
B) $994.85
C) $546.32
D) $851.97
E) $1,406.16
Answer: D
PMT = $40,000, N=30, I/Y=10%. PV at year 30 = $377,076.58
FV = $377,076.58, N = 40, I/Y = 10%; PMT = $851.97
6. Laura is going to contribute $150 on the first of each month, starting today, to her retirement account. Her employer will add $100 to each amount Laura saves. If both Laura and her employer continue to do this and she can earn a monthly interest rate of 0.50%, how much will she have in her retirement account 40 years from now?
A) $405,264.14
B) $500,362.05
C) $368,418.78
D) $619,547.97
E) $497,872.68
Answer: B
FVA Due = ($150 + $100){[(1.005)
(40)(12)
− 1]/.005}(1.005)
FVA Due = $500,362.05
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7. David Allan, age 60, will retire in 5 years. After retirement, he plans to spend $45,000 per year for 25 years. The annual expenditures are at the beginning of each year. If the rate of interest is 7%, how much money does he need today to finance his retirement? A) $400,071
B) $456,112
C) $627,797
D) $561,120
E) $501,133
Answer: A
STEP 1
PMT= $45,000; I/Y=7%; N=25; FV=0.
COMPUTE PVA (BEG) = $561,120.03 STEP 2
FV=$561,120.03; I/Y=7%, N=5.
COMPUTE PV = $400,071
8. Mr. Hopewell, 65, has recently retired. He will spend $45,000 in the first year and plans to increase his annual spending at the rate of 2% per year. If the rate of interest is
6%, and he does not expect to live beyond age 85, how much money does he need today to support his post-retirement expenses? Assume that all annual expenses occur at the end of each year. A) $711,840
B) $516,146
C) $603,760
D) $611,564
E) $547,115
Answer: C
PV of Growth Annuity = ($45,000)/(.06-.02)*(1-[(1+.02)/(1+.06)]^20) = $603,760
9. David, age 25, plans to invest $3,000 real dollars per year into his investment account. If the nominal rate of interest is 10% and the rate of inflation is 3%, how much money in nominal dollars will he have at the end of 30 years? Assume that the annual contributions occur at the beginning of each year.
A) $708,184
B) $597,113
C) $333,541
D) $218,454
E) $493,482
Answer: A
Page 4
of 12
Real rate = (1.10)/(1.03) – 1 = 6.7961%
PMT= $3,000; N=30; I/Y=6.7961%; PV=0. COMPUTE FVA (BEG)= $291,762.59 (in real dollars)
In nominal dollars = ($291,762.59) (1.03)^(30) = $708,184
10. Mr. Kai Ho Trust Fund will provide $250,000 in scholarships each year forever, with
the first payment to be made 4 years from today. The trust fund is expected to earn a
6.30% rate of return annually. How much should be set aside today to finance this fund?
A) $3,968,254
B) $4,113,890
C) $3,455,678
D) $2,997,860
E) $3,303,693
Answer: E
PV of PERPETUITY as of today = ($250,000/.063)/ (1.063)^(3) = $3,303,693
11. Betty Fionna Payday Loan Limited charges $150 interest on a $1000 Payday loan of
20 days. What is the APR of the Payday loan?
A) 35%
B) 98%
C) 167%
D) 274%
E) 336%
Answer: D: APR = $150/$1000 x 365/20 = 274%
12. Amy recently bought a house in Toronto. She wants to borrow a 5-year mortgage of $350,000 from the local bank. The quoted rate is 6.5% APR with semi-annual compounding. If the amortization period is 25 years (or 300 monthly payments), what is the monthly payment?
A) $2,363.31
B) $2,344.45
C) $2,242.50
D) $2,560.09
E) $2,113.44
Answer: B
The monthly interest rate = (1+.065/2)^(2/12) -1 = .005345 or .5345%
PV=350,000; N=300; I/Y=.5354%; FV=0.
COMPUTE PMT=2,344.45
Page 5
of 12
13. Simon borrowed a 3-year mortgage recently from the TD bank, at a rate of 5.88%, semi-annual compounding. The principal of the mortgage is $450,000; the mortgage has a 23-year amortization period, repayable in equal monthly payments. What is the balance owed after three years?
A) $433,345.79
B) $428,762.22
C) $343,486.80
D) $419,395.71
E) $423,772.86
Answer: D
The monthly interest rate = (1+.0588/2)^(2/12) -1 = .004841 or .4841%
PV= $450,000; N= 23*12 = 276; I/Y=.4841%; FV=0.
COMPUTE PMT= $2,958.70
Input: PMT= $2,958.70; I/Y=.4841; N=276-36=240; FV=0.
COMPUTE PV= $419,395.71
14. Jumanji corporation wants to issue today $10,000 face value bonds discounted by $500. The bonds have an 8.5% annual coupon rate and pay interest semi-annually. If you purchased the bonds and held them to their 12-year term what would be your yield to maturity (YTM)? A) 8.99%
B) 4.6%
C) 9.2%
D) 9.4%
E) 8.8%
Answer: C
Using calculator
PV = $10,000 – $500 = -$9,500; FV = $10,000; PMT = 0.085*$10,000/2 = $425; N = 12*2 = 24; Solve for I/Y = 4.6%; YTM = 4.6% * 2 = 9.2%
15. Today Ixtapa Corp. issues an 11 year $1,000 face value bond at a price of $948.76. Similar bonds are yielding 10.6% annually until maturity. If interest coupons are paid semi-annually then what is the coupon rate of the bond?
A) 9.34%
B) 10.6%
C) 9.8%
D) 4.9%
E) 10.0%
Answer: C
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Using calculator
PV = $-948.76; FV = $1,000; N = 11*2 = 22; I/Y = 10.6%/2 = 5.3% Solve for PMT = $49; Annual Coupon Rate = $49 * 2 / $1000 = 9.8%
16. Danilo Corp’s bonds are priced today at a 20% premium over face value; have an 8% coupon rate and will mature in 10 years. It is expected that the yield to maturity of the bond will fall by 1.5% by the end of the year. If you purchase the bond today and sell
it one year from today, what is your holding period rate of return? (assume that the semi-annual coupons are not re-invested and therefore earn no interest)
A) 18.23%
B) 15.83%
C) 12.38%
D) 10.26%
E) 13.87%
Answer: B
Using calculator PV = $1,000*1.2 = $-1,200; FV = $1,000; PMT = 0.08*$1,000/2 = $40; N = 10*2 = 20; Solve for I/Y = 2.693%; YTM = 2.693% * 2 = 5.387% which is the current yield to maturity.
YTM a year from now = 5.387 – 1.5 = 3.887%
Using calculator
FV = $1,000; PMT = 0.08*$1,000/2 = 40; N = 9*2 = 18; I/Y = 3.887 / 2 = 1.943% Solve for PV = $1,309.94 which is the price of the bond in a year.
Cap Gains = $1,309.94 – $1200 = $109.94
Coupons = 40 * 2 = 80
Holding period rate of return = ($109.94 + $80) / $1,200 = 0.1583 (15.83%)
17. Coco Corp. has a 7% 12 year bond that is callable in 10 years. It pays interest once
a year and currently sells at 90% of par value. If the bond is called at 115% of face value then its yield to call is?
A) 9.56% B) 9.50%
C) 9.73%
D) 9.79%
E) 9.87%
Answer: A
Page 7
of 12
Using calculator
PV = $1,000 * 0.9 = $-900; N = 10; PMT = $70; FV = $1,000 *1.15 = $1,150
Solve for I/Y = 0.0956 or 9.56%
18. Bond X offers semi-annual coupons with a coupon rate of 7.6%. Bond Y offers annual coupons with a coupon rate of Z%. The yield to maturity for both bonds is 9% and term to maturity for both is 25 years. If bond Y is priced today at $1,078 what is the Price of bond X? A) $861.67
B) $896.59
C) $907.34
D) $997.56
E) $1034.23
Answer: A
Using calculator
FV = $1,000; I/Y = 0.09/2 = 0.045; PMT = 0.076*$1,000 / 2 = $38; N = 50. Solve for PV = $861.67
19. 5 years ago you purchased an 8% annual coupon bond for $975. Today you sold the bond for $1,000. What is your annual rate of return on this investment if all coupons
were reinvested in your bank account that earned 1% annually until the bond was sold.
A) 7%
B) 7.63%
C) 8%
D) 8.64%
E) 9.03%
Answer: B
Using calculator
PMT = $80; I/Y = 0.01; N = 5; PV = 0; Solve for FV = $408.08 which is the value today of the reinvested coupons. $1,000 + $408.08 = $1,408.08 Total value of investment today when bond was sold. Using calculator
PV = $-975; FV = $1,408.08; N = 5; PMT = 0; Solve for I/Y = 0.0763 or 7.63% the annual rate of return on investment.
Page 8
of 12
20. Vandelay Industries, a market leader in rubber oil tanker insulation, is not expected to grow for the foreseeable future. The company recently paid a dividend of $3.60 per share to investors. If its annual rate of return is 6.34%, then what price should the stock trade at today?
A) $26.06
B) $68.14
C) $47.80
D) $40.18
E) $56.78
Answer: E
Div = $3.60; r = 6.34%; PV = Div/r = $56.78
21. A value stock is expected to pay $4.30 in annual dividends this coming year and currently trades at $55 per share. It has an expected return of 14%. What might investors expect to pay for the stock one year from now? A) $63.60
B) $58.40
C) $47.80
D) $40.18
E) $56.78
Answer: B
r = DIV
1
/P
0 + (P
1
– P
0
)/P
0 14% = $4.30/$55 + (P
1
- $55)/$55
14% - 7.82% + 100% = P
1
/$55
P
1
= $58.40
22. ALF Corp has been paying out 55% of its earnings every year as dividends, and it plans to maintain its payout ratio. The company’s stock is currently trading at $72.67. The company announced that it will be paying a dividend of $2.18 per share at the end of the year. The required rate of return on the stock is 12%. What is the expected ROE?
A) 9%
B) 20%
C) 12%
D) 45%
E) 21%
Answer: B
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We know that P0 = DIV1/(r - g)
Therefore g = r – (DIV1 / P0)
g = 0.12 – (2.18/72.67) = 0.09 or 9.0%
We also know that g = ROE × plowback ratio
Or ROE = g / plowback ratio
Therefore ROE = 0.09 / (1-0.55) = 0.2 or 20%
23. Axel Corp expects to have earnings per share of $7.60 in the coming year and a return on equity of 12.3%. If Axel Corps dividend payout ratio is 67.2% and its required return is 7.8%, what is the value of the stock today?
A) $66.20
B) $65.48
C) $201.83
D) $135.63
E) $97.44
Answer: D
EPS = 7.6; ROE = 12.30%; div payout = 67.20%; r = 7.80%
g = ROE x plowback = 12.3% x 67.2% = 4.034400% Div1 = 7.6 x 0.672 = $5.1072 PV = $5.1072 / (0.078-0.04034) = $135.63
24. Art Modular Stations is quickly growing its modular office business. Dividends are expected to increase by 7% annually for the next 3 years, with the growth rate falling off to a constant rate of 2.6% thereafter. The required return is 12.4% and the company just
paid its annual dividend of $7.80 per share. What is the current share price?
A) $103.73
B) $22.68
C) $91.68
D) $27.20
E) $70.45
Answer: C
g is 7% for first 3 years, thereafter 2.6% forever; Div0 = $7.80; Div1 = $8.35; Div2 = $8.93; Div3 = $9.56; Div4 = $9.80. r = 12.40%
P3 = Div4 / (r-g) = $9.80/(0.124 – 0.026) = $100.0385
PV for first 3 years Div1/(1+r)^1 + Div2/(1+r)^2 + Div3/(1+r)^3 + P3/(1+r)^3
=$8.35/(1+0.124)^1 + $8.93/(1+0.124)^2 + $9.56/(1+0.124)^3 + $100.0385/(1+r)^3
=$91.68
Page 10
of 12
25. Credit Swiss Equity Analyst predicts that Orange Inc's earnings and dividends will see a growth of 4.6% annual for the foreseeable future. Shareholders of Orange Inc require a 14.6% annual return and the company just paid a $3.05 annual dividend. Based on this, what will be the price of Orange Inc in 7 years?
A) $39.95
B) $41.79
C) $43.71
D) $45.72
E) $29.94
Answer: C
g = 4.60%; r = 14.60%; Div0 = $3.05
Div8 = FV of Div0, with r = 4.6%; n = 8 compute FV = $4.37 P7 = Div8/(r-g) = $4.37/(0.146-0.046) = $43.71
CONCEPTUAL QUESTIONS
26. Which of the following appears to be the most appropriate goal for corporate management?
A) maximizing market value of the company's shares.
B) maximizing the company's market share.
C) maximizing the current profits of the company.
D) minimizing the company's liabilities. .
E) minimizing the company's taxes.
Answer: A
27. Which of the following is least likely to represent an agency problem?
A) lavish spending on expense accounts.
B) plush remodeling of the executive suite.
C) excessive investment in “safe” projects. D) excessive investment in risky projects.
E) executive incentive based compensation plans.
Answer: E
28. To justify a high P/E ratio, the market must believe one of the following about a firm:
A) it has low growth opportunities.
B) it will have constant dividends forever. C) it will have decreasing dividends.
D) it has high growth opportunities.
E) it will use low depreciation to increase earnings.
Answer: D
Page 11
of 12
29. Stocks that have the same expected risk should:
A) offer the same dividend payment.
B) have the same sustainable growth rate.
C) have the same price.
D) have the same expected rate of return.
E) have the same profits.
Answer: D
30. Investors who purchase bonds having lower credit ratings should expect:
A) lower yields to maturity.
B) higher default possibilities.
C) lower coupon payments.
D) higher purchase prices. E) lower par values.
Answer: B
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3 103 Spring 2021
st: Test 2 (Finance) Online
nis Question: 1 pt
5 of 19 (1 complete) ▼
How much must be deposited today into the following account in order to have a $135,000 college fund in 11 years? Assume no additional deposits are made.
An account with quarterly compounding and an APR of 7.32%
Sshould be deposited today.
(Do not round until the final answer. Then round to the nearest cent as needed.)
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What is the answer A thru D?
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= Homework: Homework 3
Using the simple interest formula, determine the number of days until $1256.00 will earn $22.14 interest at 8-% p.a.
The number of days required is
(Round up the final answer to the nearest day as needed. Round all intermediate values to six decimal places as needed.)
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Chapter 9 Quiz
OA. $18,200
OB. $18,800
OC. $17,500
O D. $20,300
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Question 5 of 10
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Buddy Company uses the allowance method to account for uncollectible receivables. At the beginning of the year,
Allowance for Bad Debts had a credit balance of $800. During the year Buddy wrote off uncollectible receivables of
$2,100. Buddy recorded Bad Debts Expense of $2,800. Buddy's year-end balance in Allowance for Bad Debts is
$1,500. Buddy's ending balance of Accounts Receivable is $20,300. Compute the net realizable value of Accounts
Receivable at year-end.
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PROBLEMS OF SEMESTER FINAL TEST 2021
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Thursday : January 21, 2021 --- 80 Minutes
1. In this section we examine three theories of investor preference: The dividend irrelevance
theory. The "bird in the hand" theory, the tax preference theory, which theory is the best?
What is the different of stock dividends, stock splits, and stock repurchase.
2. In the working capital management, we know about cash conversion cycle model. For
problem if average inventories are $3 million and sales are $11 million. If receivables are
S 657.535 and sales are S 11 million. Then, if its cost of goods sold are $9 million per year
and if its accounts payable average $ 657.535. What is the length of the cash conversion
sicle?
3. The ELGRAJO Corporation has capital structure as follow…
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els B: Lesson 1 - Salary
Target due: 1/14/21 58.33%
$344.75
$700
2) Choose the best answer.
Caleb has a job that pays $11.15 per hour for a 40-hour work week. He is paid time
and a half for every hour over 40 that he works in a week. What will his gross pay be
for a week in which he works 46 hours?
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A1 Math Algebra II 20-21 Form MT Online
Screen Settings
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I Sa
Main Street Bank has savings accounts that earn 0.8% interest per month. All deposits, interest payments, and account closures are processed on the first day of a month
Part A
Assume a customer deposits the same amount of money, x, in dollars, each month. Write an expression that can be used to determine how much money would be in a savings account from Main
Street Bank after n months.
Respond in the space provided.
Part B
Luciana and Valerie are both opening savings accounts at Main Street Bank and will close their savings accounts at the end of their savings strategy Luciana's savings strategy is to deposit $200
each month for 24 months. Valerie's savings strategy is to deposit $400 each month for 12 months.
Whose savings strategy will result in…
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Assignment - 3. Automobile Loens
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QUESTION 2 OF 6
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Miguel takes a car loan for $16,000. The loan is for 60 months and has an interest rate of 4%. There are an additional
$1,000 of fees. What is the APR for this loan?
O 6.25%
O 6.4%
O 8.6%
O 10.25%
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Case Study # 4 Excel Submission – Capital Budgeting Comprehensive Problem
Pinnacle Custom Home Builders purchased a 40 foot articulating boom lift three years ago for
$50,000. The equipment has been depreciated under the 5-year MACRS schedule (20%, 32%,
19%, 12%, 12% & 5%). The old equipment can be sold for $33,000.
Pinnacle is considering the purchase of a new 60 foot articulating boom lift that would allow
the company to complete nearly all of its construction projects without the need for costly rental
lifts. The new lift could be purchased for $105,000 and would also fall under the 5-year MACRS
depreciation schedule.
Assume the old and new equipment would provide the following operating gains (or losses)
over the next six years.…
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Hey I was wondering if I can get help with this thank you
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Return to Blackboard
US Weygandt, Accounting Principles, 13th Edition, Custom WileyPLUS Course for Bronx Community College
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Exercise 9-12 a-b (Part Levei SubmiSSion)
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PRINTER VERSION
4 ВАCK
Oriole Supply Co. has the following transactions related to notes receivable during the last 2 months of 2020. The company does not make entries to accrue interest excer
ES-
December 31.
Nov. 1 Loaned $23,500 cash to Manny Lopez on a 12-month, 12% note.
t
Sold goods to Ralph Kremer, Inc., receiving a $61,200, 90-day, 10% note.
Dec. 11
16
Received a $97,200, 180 day, 8% note in exchange for Joe Fernetti's outstanding accounts receivable.
31
Accrued interest revenue on all notes receivable.
(a)
Your answer is correct.
Journalize the transactions for Oriole Supply Co. (Ignore entries for cost of goods sold.) (Credit account titles are automatically indented when amount is ente
indent manually. Use 360 days for calculation. Round answers to 0 decimal places, e.g.…
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Assignment - 3. Automobile Loans
Attempt 1 of 1
SECTION 2 OF 4
QUESTION 3 OF 6
2
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John takes a car loan for $18,000. The loan is for 36 months and has an interest rate of 2.5%. There are additional $500
of fees. What is the APR for this loan?
O 2.5%
O 4.5%
O 5.3%
O 9.5%
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