FIN 3312 – Fall 2008 –
EXAM 1
1
NAME:
_________________________________________________
PART I: Conceptual/Multiple Choice – 40 questions 1/2 point each = 20 points
1.
The primary operating goal of a publiclyowned 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.
2.
The value of an investment after one or more periods of time is called the:
a.
simple value.
b.
present value.
c.
discounted value.
d.
future value.
e.
interest on interest value.
3.
The process of accumulating interest in an investment over time to earn more
Interest is called:
a.
discounting.
b.
compounding.
c.
complexing.
d.
multiplying.
e.
indexing.
4.
All else constant, the present value will __________ as the period of time decreases,
given an interest rate greater than zero.
a.
remain constant
b.
decrease
c.
increase
d.
either remain constant or decrease
e.
either remain constant or increase
5.
The relationship between the present value and the interest rate is best described as:
a.
direct.
b.
inverse.
c.
unrelated.
d.
uncorrelated.
e.
vertical.
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EXAM 1
2
6.
An annuity for which the cash flows occur at the beginning of each time period is
called a(n):
a.
ordinary annuity.
b.
beginning annuity.
c.
annuity due.
d.
perpetuity.
e.
perpetuity due.
7.
The effective annual rate is defined as the interest rate that is:
a.
compounded at regular intervals throughout the year.
b.
equal to a monthly rate multiplied by twelve.
c.
computed by multiplying the rate per period by the number of periods per year.
d.
expressed as if it were compounded once per year.
e.
compounded only once over a multiyear period.
8.
You are analyzing the value of an investment by calculating the present value of its
expected cash flows.
Which of the following would cause the investment to look
better?
a.
The discount rate decreases.
b.
The cash flows are extended over a longer period of time, but the total amount
of the cash flows remains the same.
c.
The discount rate increases.
d.
The riskiness of the project’s cash flows increases.
e.
The total amount of cash flows remains the same, but more of the cash flows
are received in the later years and less are received in the earlier years.
9.
Which of the following statements regarding a 30year, $100,000 mortgage with a
nominal interest rate of 10%, compounded monthly, is NOT CORRECT?
a.
The monthly payments will decline over time.
b.
The proportion of the monthly payment that represents interest will be lower
for the last payment than for the first payment on the loan.
c.
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 Spring '09
 David
 Finance, Balance Sheet, Interest, a. b. c., b. c. d.

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