Exam 1 Review

Exam 1 Review - Fin 301 Exam 1 Multiple Choice Identify the...

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Fin 301 Exam 1 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. What would the future value of $100 be after 5 years at 10% compound interest? a. $161.05 b. $134.54 c. $127.84 d. $151.29 e. $143.65 ____ 2. Suppose a U.S. government bond will pay $1,000 three years from now. If the going interest rate on 3-year government bonds is 4%, how much is the bond worth today? a. $943.46 b. $991.43 c. $889.00 d. $907.91 e. $968.40 ____ 3. Uncle Junior has $500,000 and wants to retire. He expects to live for another 20 years, and to be able to earn 8% on his invested funds. How much could he withdraw at the end of each of the next 20 years and end up with zero in the account? a. $55,119.76 b. $53,431.83 c. $54,764.40 d. $47,843.15 e. $50,926.10 ____ 4. Credit card issuers must by law print their Annual Percentage Rate (APR) on their monthly statements (This is the nominal rate). If the APR is stated to be 15%, with interest paid monthly, what is the EFF% on the card? a. 15.59% b. 16.71% c. 17.10% d. 16.08% e. 12.91%
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5. You have been offered a 7-year investment at a price of $50,000. It will pay $5,000 at the end of year 1, $10,000 at the end of year 2, and $15,000 at the end of year 3, plus a fixed but currently unspecified cash flow, X, at the end of Years 4 through 7. The payer is essentially riskless, so you are sure the payments will be made, and you regard 9% (yearly compound interest rate) as an appropriate rate of return on riskless 7-year investments. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X? a. $10,158.58 b. $13,431.83 c. $14,764.40 d. $17,843.15 e. $15,119.76 ____ 6. 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 ____ 7. Today is your 20 th birthday, and your parents just gave you $5,000 that you plan to use to open a stock broker- age account. You plan to add $500 to the account each year on your birthday. Your first $500 contribution will come one year from now on your 21 st birthday. Your 45 th and final $500 contribution will occur on your 65 th birthday. You plan to withdraw $5,000 from the account five years from now on your 25 th birthday to take a trip to Europe. You also anticipate that you will need to withdraw $10,000 from the account 10 years from now on your 30 th birthday to take a trip to Asia. You expect that the account will have an average annual return of 12%. How much money do you anticipate that you will have in the account on your 65 th birthday, following your final contribution? a.
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Exam 1 Review - Fin 301 Exam 1 Multiple Choice Identify the...

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