Quiz01Key - Name (Printed) if 5tftLf FIN 5405 Financial...

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Name (Printed) if 5tftLf FIN 5405 Financial Management OEM 2009 Program Quiz 1 - Solutions - Code A May 17,2008 Note: This quiz consists of 10 questions. All questions are worth 1.5 points. By turning in this quiz I am confirming that all work on this quiz is my own and that I have not received help from other individuals in answering the specific questions on this quiz. Student's Signature _ FIN 5405 - Quiz 1 Solutions - OEM 2009 Program - Code A Page 1
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Score 1. You are given the cash flows listed below at Years 5, 7, and 8, but you aren't sure about the cash flow at Year 6. Assume that the appropriate interest rate for these cash flows is 10% and that the value of all the cash flows in Years 5-8, evaluated as of Year 0, is $586.26. Determine the value of the missing cash flow at Year 6. Year Cash Flow 5 $100 6 $ ? 7 $300 8 $600 * A. B. C. D. E. $120 $160 $200 $240 $280 CF o = $ 0.00 CF 1 = $ 0.00 CF 2 = $ 0.00 CF 3 = $ 0.00 CF 4 = $ 0.00 CF s = $100.00 CF 6 = $ 0.00 CF 7 = $300.00 CF 8 = $600.00 IIYR = 10% Solve for V o wlo CF6 = $495.94 Difference = $586.26 - $495.94 = $90.32 = Value of CF 6 at Year 0 Solve for CF 6 at Year 6 = ($90.32)(1.10)6 = $160;00 VERIFY, CF o = $ 0.00 CF 1 = $ 0.00 CF 2 = $ 0.00 CF 3 = $ 0.00 CF 4 = $ 0.00 CF s = $100.00 FIN 5405 - Quiz 1 Solutions - OEM 2009 Program - Code A Page 2
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CF 6 = $160.00 CF 7 = $300.00 CF 8 = $600.00 IIYR = 10% Solve for V o wI CF 6 = $586.26 2. You plan to invest $100 at Year 0, $300 at Year 1, $500 at Year 2, and $700 at Year 3, and then simply leave your money invested until Year 20. However, you are curious about how much you would be able to withdraw at Year 10 if you can earn an effective annual rate of 9.325 percent. "* A. B. C. D. E. $3,089.99 $3,140.96 $3,190.98 $3,240.01 $3,290.03 Determine Value at Year 0: CFj 100 CFj 300 CFj 500 CFj 700 IIYR 9.325% Solve for NPV = $1,328.47 Now Convert to Value at Year 10: ($1,328.47)*(1.09325) 10 = $3,240;01 Alternatively, N = 10; IIYR = 9.325; PV = 1,328.47 Solve for FV = $3:24().01 Alternatively, the Long Way: ($100)*(1.09325) 10 ($300)*(1.09325)9 ($500)*(1.09325)8 ($700)*(1.09325)7 Total = $ 243.89 = $ 669.26 = $1,020.30 = $1,306.58 = $3,240.03 FIN 5405 - Quiz 1 Solutions - OEM 2009 Program - Code A Page 3
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3. You are looking at a 20-period regular annuity that has annual cash flows of $615 in Years 13 through 32. Assume that the correct interest rate to use for this annuity, based on its risk, is an effective annual rate of 7.394 percent, but with daily compounding (365-day year). Given this information, determine the present value of this regular annuity at Year 5. * A.
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Quiz01Key - Name (Printed) if 5tftLf FIN 5405 Financial...

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