Practice%20Final%20Exam_Solns%20Corrected

Practice%20Final%20Exam_Solns%20Corrected - UGBA103 Sample...

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UGBA103 Sample Final Exam 5/7/09 1 UGBA 103 PRACTICE Final Exam 5/7/2009: 1100 1400 Hrs Please read instructions carefully before you proceed 1. This practice exam has 10 pages and 17 questions. Some questions have sub- parts and some are multiple choice. Make sure you have the entire set of 10 pages. 2. If you are unclear on any question, please use assumptions and proceed. Due to limited proctoring resources, please do not expect that your queries will be answered. 3. Answers will be posted on bSpace on Friday evening. In the meantime, you are free to use the forum/chat facility to discuss answers with your peers. NAME_______________________________________________

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UGBA103 Sample Final Exam 5/7/09 2 Answer Sheet Question A B C D E 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Note: If the question doesn’t have sub -questions, write your answers in the column provided for sub- question A.
UGBA103 Sample Final Exam 5/7/09 3 1. You have an investment opportunity in Japan. It requires an investment of \$5 Million today and will produce a cash flow of Yen 600 Million in one year with no risk. Suppose the risk-free interest rate in United States is 7% and the risk-free interest rate in Japan is 5%, and the current competitive exchange rate is Yen 112 per Dollar. What is the NPV of this investment? (5 points) YEN 600M IN 1 YEAR EQUALS YEN 600M/(1.05) TODAY => YEN 571.43M TODAY \$5M TODAY = YEN 5M * 112 TODAY = YEN 560M TODAY THEREFORE NPV = 571.43 560 = YEN 11.43M = \$11.43/112 = \$102,054 2. Your daughter ’s birthday is today and she just t urned 5. You anticipate that she will be going to college when she’s 18 years old. You would like to have \$150,000 in savings account to fund her education at that time. If the account promises to pay a fixed interest rate of 8% per year, how much money do you need to put into the account 5 years from now (when your daughter is 10 years old) to ensure that you will have \$150,000 when she’s 18? (10 points) 150,000/ (1+0.08)^8 = 81,040.33 3. What is the present value of \$1,000 paid at the end of each of the next 100 years if the interest rate is 5% per year? (5 points) 1000/0.05 (1 1/ (1.05)^100) = 19,848 4. Suppose the interest rate is 8% APR with monthly compounding. What is the present value of an

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