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Unformatted text preview: Name EEB .—
Peoplesoft Number University of Houston
C. T. Bauer College of Business
Finance 3332 Spring, 2011
Exam 1A To receive full credit: 0 Show all work—equations in variable form & equations with numbers plugged in
Clearly indicate your answer Financial functions may be used only for finding annuity factors All inputs to ﬁnd annuity factor must be shown Carry all decimals, rounding only ﬁnal answer Decimal places should be rounded to four places (two in percent form)
Currency answers rounded to the nearest cent, where applicable Include applicable units ($, %, etc.) on answers 1. How much is Drusilla willing to pay for an investment that promises to pay $80 per year
forever. if she requires a 14 percent return? (4) —. Sf._ 50 33 i7 L — OH ' S’HJ'B 2. A few months ago, Frank purchased 300 shares of stock for $120 per share, the stock is now
worth $110, and he received a dividend check of $600. What is his holding period return? (6) DPS: GOO ; 4‘2 300
new \\o—20+1 e h r ; ’,_.__..___.. : hﬂrﬂrwlwW" : " : Rf"
P B ‘20 no I
09 " he? {jg/4’ 3. Calais received a small inheritance of $30,000 and deposited it in a savings account. How
much will she have in 20 years if her account earns 6 percent, compounded annually? (6) F\/ : P\] (1+p)“
: 30,ooo(\‘o"> ; 30,000 K3107 ‘) : W\ / 2,0 CAN sow/E IN ONE STEP CRT—W0. 4. How much am  willing to pay for an investment‘iNhich pays $120,000 per year for 30 years,
with the first payment beginning in 8 years, if my opportunity cost is 6 percent? (10)  mT.l>\/\FA 30M
PVA  ?~”’T_ L” (237$
0“) (:3 1 w a) " WT
. l \l = 3.1946
: l'20,0CO .PVlFAﬁe’go NIP ' M.“ (Moey7 = W (Loo)? : l i=5 warm .45" more szmsﬂ
l. o 3 (a W I
5. Justin wants to have $50,000 in his account in 12 years. How much must he deposit today If
his account earns 4 percent per year? (6) _ FV .: oo " 0 c
P" ‘ nu“ ‘ "EgiLdzw)” " 913;”? " 53"11q'8”
\ L’ . ‘_ Ola MW 6. If Bubba saves $12,000 per year, how much will he have in 35 years if his account earns 4 percent compounded annually? (8) 35 N
FVA=PMTF\lll:ﬂ~;)n 4 3/7
J (33.6522) w\ VmT
= l1,ooo~l’VlFI\.m'3g C9791; 139521. = $ 885, 8219.70 7. Refer to the following quotes to complete the sentence below. Canadian Dollars to 1 British Pound
Set. 30, 2010 1.6365 CAD/GBP
Dec. 29, 2010 1.5406 CAD/GBP Over this threemonth period, the Canadian Dollar has ngzgz 2,}; in
value relative to the British Pound. (4) 8. For this problem, variable form equation is not required, but you must show equations with
numbers plugged in where applicable. (10) A corporation had taxable income of $320,000. (11:) a) What is the firm’s income tax liability?
a” : 71,150 + (.3ﬁ)(320/ooo — (490,000) = 22,250 + 85,800 210/0“ = F l 06,050.‘
Lg.) b) What is the firm's average tax rate?
l o 8 0 s 0
"‘5 :l . 33 '7 "l l
320, 000
(1) c) What is the firm’s marginal tax rate? \ 3‘: 010 MW” 9. Gertrude plans to repay a loan of $40,000 which requires payments of $800 per years. If she
makes her payments at the beginning of each year, how much will be her annual payments? (4) 1,17% PmT = 209. ., itsinmate}
(:01 10. How much must Jerrod save each year if his account earns an annual rate of 8 percent and
he wants to have $55.000 in his account for a down payment on a house in 5 years? (8) “N
VA: b
F” (5.5600) 8 i/‘(
>>,ooo = PMT' VHF/1.03); —l PW
Wm. = $3000 a m UK ml: 5.8000
5.0600 __.,~——'———J 11. Suzie borrowed $45,000 at an annual rate of 7 percent to be repaid with annual payments
over the next 9 years. How much will be her annual payments? (8) :. T. V\FAL,‘ 6‘ N
WA Pm P (0.5.31) 1 I/w
45,000: PmT. PVlFA¢,,\ _‘ PM a ’ ’2,
qgooo LPTPV— Lblb
PM 1. _,J_———— 7'?
T 6,561 0000 aﬁl 12. How much would Olan be willing to pay for an investment with the following cash ﬂow
stream if his required return is 8 percent? (6) 1 $2000 = $021.03 Characterize each statement by circling T for True or F for False. (2 points each) (1) F 1. As mentioned in the Story of Wall Street video. prior to the civil war, the terms stock
and band were used interchangeably. T® 2. If a corporation has $10,000 in dividend income, taxable income will increase by
$7000. .2). 4 3000 T i F )3. The primary goal of the ﬁnancial manager is to maximize the corporation's Earnings
per Share. ﬂ H Motif/bx @ F 4. Due to many abuses such as incomplete information and fraudulent information.
states enacted blue sky laws. which got the name because many risky securities were
called nothing more than "pieces of blue sky." . . . (Kidd/law ..
T ® 5. Primary claims are issued by financral intermediaries to help facrlitate the flow of funds
in the US financial system. SPLOri' ~ Tie WV‘ T ® 6. Financial markets in which foreign currency is exchanged are classified as money
markets. 6: 7. Capital market efﬁciency implies that securities that trade in those markets have zero
net present values. T G) 8. Given the following information concerning taxable income for a corporation which
was formed in 2005, the firm’s tax liability in 2008 would be zero. Year Taxable Income 340.000 ~40,ooo = 0
70.000 40,000 :0
150,000 __ 125.000  .40ng —— 85,000 lambs \nwmu
2009 75,000 (1) F 9. If I am interested in maximizing my wealth. and I have a choice of three cash payouts,
I would prefer option one (1) if my opportunity cost is 20 percent. ‘1
1) $2000 today 3 2:66?)
2) $470.05 per year for ten years M1 0 b7
3) $12,201.88 to be received in ten years. M .1 0" 6.] @F 10. The inverse relationship between interest rates and value implies that if interest rates
increase, the value of an asset will decrease, ceteris paribus. “l 4. ...
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