fa06ex1 - Fin 221 Fall 2006 Exam 1 Multiple Choice Identify...

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Fin 221 Fall 2006 Exam 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1) Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership? A. Corporations generally face fewer regulations. B. Less of a corporation's income is generally subject to taxes. C. Corporate shareholders are exposed to reduced liability, but this factor is offset by the tax advantages of incorporation. D. Corporate investors are exposed to unlimited liability. E. Corporations generally find it easier to raise capital. 2) The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to A. Maximize its expected total corporate income. B. Maximize its expected EPS. C. Minimize the chances of losses. D. Maximize the stock price per share over the long run, which is the stock's intrinsic value. E. Maximize the stock price on a specific target date. 3) Which of the following statements is CORRECT? A. A good goal for a firm's management is maximization of expected EPS. B. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. C. One example of an agency relationship is the one between stockholders and managers. D. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. E. Firms in highly competitive industries are more likely to consciously exercise "social responsibility" than are firms in oligopolistic industries. 4) How much would $1, growing at 5% per year, be worth after 100 years? A. $141.05 B. $131.50 C. $164.52 D. $144.50 E. $155.94 5) 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
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B. $2,591.45 C. $2,324.89 D. $1,888.92 E. $2,854.13 6) The U.S. Treasury offers to sell you a bond for $613.81. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price? A. 5.91% B. 6.71% C. 7.10% D. 5.59% E. 5.00% 7) Your father is about to retire, and he wants to buy an annuity that will provide him with $50,000 of income a year for 20 years, with the first payment coming immediately . The going rate on such annuities is 6%. How much would it cost him to buy the annuity today? A. $607,905.82 B. $416,110.34 C. $517,513.68 D. $615,976.84 E. $488,349.15 8) Your girlfriend just won the Power Ball lottery. She has the choice of $10,000,000 today or a 30-year annuity of $500,000, with the first payment coming today. What rate of return is built into the annuity? A. 2.71%
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This note was uploaded on 10/20/2008 for the course FIN 301 taught by Professor Rj during the Spring '08 term at Punjab Engineering College.

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fa06ex1 - Fin 221 Fall 2006 Exam 1 Multiple Choice Identify...

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