Practice Exam 1 v2.docx - Question10pts...

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Question 1 0 pts I will not  discuss the contents of the exam with anyone until the entire exam period is  over and the exam and results have been posted.  This includes, but is not limited to,  posts to websites, personal discussions with anyone, tweets, e-mails, etc.  I further  understand that violation of this rule is an honor code violation that will result in my  failing the class, as well as other sanctions that may be applied by the Office of Student  Conduct and Conflict Resolution, up to and including permanent expulsion from the  University. No, I don't agree. I will stop taking the exam immediately. My exam will not be graded, and I will receive a zero for the exam. Yes, I understand and agree.   Flag this Question Question 2 5 pts Angelina JoLi, CFA, was (again) explaining arbitrage to her colleague Brad.  “Ok, Brad,  take the dice example again.  In a fair game, here’s the price to play, probabilities, and  payoffs:” “For the actual dice, these probabilities are off, and only you know it.  The first of the two dice is fair.  On the second, #2, #3, #4, and #5 are all fair.  But #6 has a 21% chance of  occurring, leaving #1 with a low probability of occurring.” “To arbitrage this, you take a long bet on 12, and a short bet on 2.  The outcome of the  game is 7 (5 and 2, respectively, on the dice).  Now, Brad, let’s test your math skills.   What is your expected payoff to this strategy?” $0.52 $0.46 $0.34 $0.40 $0.28   Flag this Question Question 3 5 pts A 4-year annuity pays $100 at each of Years 5-8.  Determine the value of this annuity at Year 20 if the appropriate interest rate is 8 percent.
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$1,311.65 $1,190.98 $1,374.47 $1,134.72 $1,253.16   Flag this Question Question 4 5 pts Assume that you are analyzing the value of 3 perpetuities.  Perpetuity 1 will make  annual payments of $500 each year starting at Year 12.  Perpetuity 2 will make annual  payments of $750 each year starting at Year 27.  Perpetuity 3 will make annual  payments of $900 each year starting at Year 33.  Assuming that the correct interest rate to use is a nominal annual interest rate  of 12.0 percent, where compounding is semi- annual, determine the value of these three perpetuities evaluated at Year 27. $42,211.07 $36,989.87 $40,470.67 $35,249.47 $38,730.27   Flag this Question Question 5 5 pts Assume that you expect to receive a $100 annual annuity in Years 1-10 (10 payments),  followed by a $200 annual annuity in Years 11-20 (10 payments).  Also assume that the corresponding nominal annual rate for these annuities is 10 percent, but compounding  is semi-annual .  Given this information, determine the present value (value at Year 0) of  this 20-year cash flow.
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