FIN301_Sample_Exam_ch5 - FIN 301, S04 - EXAM #2 SAMPLE EXAM...

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FIN 301, S04 -- EXAM #2 SAMPLE EXAM Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. You have determined the profitability of a planned project by finding the present value of all the cash flows from that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? 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. Statements b and c are correct. e. Statements a and b are correct. ____ 2. Your family recently obtained a 30-year (360-month) $100,000 fixed-rate mortgage. Which of the following statements is most correct? (Ignore all taxes and transactions costs.) a. The remaining balance after three years will be $100,000 less the total amount of interest paid during the first 36 months. b. The proportion of the monthly payment that goes towards repayment of principal will be higher 10 years from now than it will be this year. c. The monthly payment on the mortgage will steadily decline over time. d. All of the statements above are correct. e. None of the statements above is correct. ____ 3. Today, Bruce and Brenda each have $150,000 in an investment account. No other contributions will be made to their investment accounts. Both have the same goal: They each want their account to reach $1 million, at which time each will retire. Bruce has his money invested in risk-free securities with an expected annual return of 5 percent. Brenda has her money invested in a stock fund with an expected annual return of 10 percent. How many years after Brenda retires will Bruce retire? a. 12.6 b. 19.0 c. 19.9 d. 29.4 e. 38.9 ____ 4. Suppose you put $100 into a savings account today, the account pays a nominal annual interest rate of 6 percent, but compounded semiannually, and you withdraw $100 after 6 months. What would your ending balance be 20
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This note was uploaded on 10/03/2010 for the course FINANCE 08FB40447 taught by Professor Raymond during the Spring '10 term at University of Manchester.

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FIN301_Sample_Exam_ch5 - FIN 301, S04 - EXAM #2 SAMPLE EXAM...

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