This preview shows pages 1–4. Sign up to view the full content.
FIN303
Examtype questions
For Midterm 2
Chapter 2
1. Suppose you have $2,000 and plan to purchase a 3year certificate of deposit (CD) that
pays 4% interest, compounded annually.
How much will you have when the CD
matures?
a.
$2,324.89
b.
$2,591.45
c.
$2,249.73
*
d.
$2,011.87
PV= 2,000; I=4%;N=3 PMT=0; FV=?
2. Suppose a U.S. government bond promises to pay $2,249.73 three years from now.
If the
going interest rate on 3year government bonds is 6%, how much is the bond worth
today?
a.
$2,011.87
b.
$2,591.45
c.
$2,324.89
d.
$1,888.92
*
PV=?; I=6%; N=3; PMT=0; FV=2,249.73
3.
What is the future value of a 5year ordinary annuity with annual payments of
$200, evaluated at a 15 percent interest rate?
a.
$
670.44
b.
$
842.91
c.
$1,169.56
d.
$1,348.48
*
Financial calculator solution:
Inputs:
N = 5; I = 15; PV = 0; PMT = 200.
Output:
FV =
$1,348.48.
4.
What is the present value of a 5year ordinary annuity with annual payments of
$200, evaluated at a 15 percent interest rate?
a.
$
670.43
*
b.
$
842.91
c.
$1,169.56
d.
$1,348.48
Financial calculator solution:
Inputs:
N = 5; I = 15; PMT = 200; FV = 0.
Output:
PV =
1
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document $670.43.
5.
A real estate investment has the following expected cash flows:
Year
Cash Flows
1
$10,000
2
25,000
3
50,000
4
35,000
The discount rate is 8 percent. What is the investment’s present value?
a.
$103,799
b.
$ 96,110
*
c.
$ 95,353
d.
$120,000
PV = $10,000/1.08 + $25,000/(1.08)
2
+ $50,000/(1.08)
3
+ $35,000/(1.08)
4
= $9,259.26 + $21,433.47 + $39,691.61 + $25,726.04
= $96,110.38
≈
$96,110.
6.
If $100 is placed in an account that earns a nominal 4 percent, compounded
quarterly, what will it be worth in 5 years?
a.
$122.02
*
b.
$105.10
c.
$135.41
d.
$120.90
Financial calculator solution:
Inputs:
N = 20; I = 1; PV = 100; PMT = 0.
Output:
FV =
$122.02.
7.
In 1958 the average tuition for one year at an Ivy League school was $1,800.
Thirty
years
later,
in
1988,
the
average
cost
was
$13,700.
What was the growth rate in tuition over the 30year period?
a.
12%
b.
9%
c.
6%
d.
7%
*
Financial calculator solution:
Inputs:
N = 30; PV = 1800; PMT = 0; FV = 13700.
Output:
I =
7.0%.
8.
At an inflation rate of 9 percent, the purchasing power of $1 would be cut in half
in 8.04 years.
How long to the nearest year would it take the purchasing power of
$1 to be cut in half if the inflation rate were only 4 percent?
a.
12 years
b.
15 years
c.
18 years
*
d.
20 years
2
Financial calculator solution:
Inputs:
I = 4; PV = 1; PMT = 0; FV = 0.50.
Output:
N = 17.67
≈
18 years.
9.
South Penn Trucking is financing a new truck with a loan of $10,000 to be repaid
in 5 annual endofyear installments of $2,504.56.
What annual interest rate is the
company paying?
a.
7%
b.
8%
*
c.
9%
d.
10%
Financial calculator solution:
Inputs:
N = 5; PV = 10000; PMT = 2504.56; FV = 0.
Output:
I =
8%.
10.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 10/11/2010 for the course FINANCE BUS 420 taught by Professor Abc during the Fall '10 term at N.C. State.
 Fall '10
 abc
 Finance, Interest

Click to edit the document details