1 ANSWER SHEET –VERSION A Do not remove the staple Finance 550 - Lee Pinkowitz MIDTERM EXAM October 22nd, 2013 Name:___________________________KEY____________________ CIRCLE Class Time: 8:00 A.M 9:30 A.M. Please read the following instructions carefully: (i)Make sure you have the case questions booklet for VERSION A. 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 8 pages and 4 sections in your booklet (11 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)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:__45_ III:__30_ IV:__30_ Total:_125_

2 SECTION I: YOU CAN’T HANDLE THE TRUTH!!! OR MAYBE YOU CAN 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.Every one of the statements A-D below is TRUE (to be clear: if you answer false, explain which statements are NOT true and briefly WHY. To answer true, all the statements below must be true)A.For any given stream of positive cash flows, future value will increase as interest rates increase. B.For a fixed interest rate and a given stream of positive cash flows, when the frequency of compounding per year increases, present value decreases. C.Assuming you invest $100 at 12% EAR, you will have roughly $769 in 18 years. D.If two streams of positive cash flows have the same payment, number of payments, the same positive discount rate, and both start at the same time, the present value of an annuity due is greater than the present value of an ordinary annuity.