Fin550Midterm_2014_KEY.pdf - ANSWER SHEET Do not remove the...

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1 ANSWER SHEET Do not remove the stapleFinance 550 - Fall 2014 Sandeep Dahiya and Lee Pinkowitz MIDTERM EXAM October 18th, 2014 Name:_________________________KEY_________________________ 8:00 A.M 9:30 A.M. CIRCLE Class Time:2:00 P.M. 3:30 P.M. Please read the following instructions carefully: (i)Put all your solutions and work on THIS answer sheet. We cannot give partial credit for things not written.(ii)Read the questions completely and carefully. Make sure you understand what is being asked before launching into calculations.(iii)Please put your final answers in the boxes that are provided. (iv)For dollar figures, you can round to the nearest cent. For rates, carry computations out 4 places (i.e. 0.0123 =1.23%) (v)The exam totals 125 points. You have 180 minutes to complete the exam. Allocate your time wisely. Use the number of points assigned to each question as your guide. (vi)Check that there are 10 pages and 5 sections in your booklet (12 questions) (vii)In order to get partial credit, we recommend that you: (1) attempt all questions; (2) show detailed calculations, time lines, etc; (3) write out the inputs you used if you are using a financial calculator. Make sure you write legibly, if we cannot read your work/answer, it is wrong. (viii)Resist the temptation to answer questions with a “shotgun” approach. Incorrect statements, even if they are irrelevant to the problem you are answering, will be penalized. (ix)We can not answer any questions during the exam.If something is unclear or ambiguous, state your assumptions clearly and go ahead with answering the questions. In a multiple part problem, use the assumed answers to solve the later parts. This allows you to skip sections if you get stuck.(x)Good Luck Exam Points I:___20__ II:___40__ III:___20__ IV:___20__ V:___25__ Total:_125 _
2 SECTION I: DID TUITION BUY YOU INTUITION? Questions 1-2 (20 points total) True or False, Explain: (20 points total 10 points each question) Use the following information to determine whether the statements are true or false. If the statement is false provide a BRIEF explanation as to why it is false (BRIEF means AT MOST a few sentences). For a statement to be true, it must always be true. Thus, if the statement is true, there is no need for further explanation. Show work if necessary.1.With positive cash flows and interest rates, holding everything else constant, the higher the frequency of compounding, the lower the present value of a stream of cash flows. (10 points)

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