This preview shows pages 1–4. Sign up to view the full content.
Final : Fin819
Last name______________
First name__________________
Instruction.
For the multiple choice questions (2 point each), you write your answers on
scantrons. For the last three questions, write your answers on the exam.
Please write
your name on both scantrons and exams legibly and clearly.
1. Businesses can be organized as
A) sole proprietorships
B)
partnerships
C)
corporations
D) any of the above
E) none of the above
Answer D)
2.
Limited liability is an important feature of:
A) Sole proprietorships
B)
Partnerships
C)
Corporations
D) All of the above
E) None of the above
Answer: C
3.Current price of Company X's stock is $100.
The table below gives the data on end of the year
prices and probabilities dependent on the state of the economy.
Calculate the standard deviation
for the rate of return for the stock (no dividends).
E c o n o m
y
P r o b a b i l i t y
E n d o f t h e y e a r p r i c e
G
r o w
t h
. 5
$ 1 3 0
R
e c e s s i o n
. 5
$ 9 0
A) 12.5%
B)
15.5%
C)
14.3%
D)
10.0%
E)
None of the above
Answer: E)
4.
Mr. John has $100 income this year and zero income next year. The market interest rate
is 10% per year.
Mr. John also has an investment opportunity in which he can invest $50
this year and receive $70 next year.
Suppose Mr. John consumes $30 this year and
invests in the project.
What is the NPV of the investment opportunity?
A) $5
B)
$13.64
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document C)
$0 (zero)
D)
$ 33.64
E)
None of the above.
Answer: B
Response: NPV = (70/1.1) 50 = 13.64
5.Which of the following statements regarding the net present value rule and the internal
rate of
return rule is always true?
A) Accept a project if the internal rate of return is positive
B)
Accept a project if the internal rate of return on a risky project exceeds the cost of
capital for the project
C)
Accept a project if the net present value is positive
D) B and C
E)
none of the above
Answer: C
6.Which of the following is true about discounting future riskfree cash flows in the NPV rule:
A) A dollar today is worth more than a dollar tomorrow (for positive riskfree interest
rates)
B)
The value of a dollar is increasing all the time
C)
A risky dollar is worth more than a safe one
D) A and B above
E)
None of the above
Answer: A
7.
Which of the following statements is true?
A) Present value of an annuity due is always large than the present value of an
equivalent annuity for a given positive interest rate ( an annuity due means
immediate cash flows now)
B)
The present value of an annuity approaches the present value of a perpetuity as n
goes to infinity for a given interest rate
C)
Both A and B are true
D) Both A and B are false
E)
None of the above
Answer: C
8.
Which of the following statements is true about real and nominal interest rates?
A) Nominal interest rates are always larger than real interest rates
B)
Real interest rates can be negative
C)
Nominal interest rates cannot be negative
D)
Both B and C
E)
None of the above
Answer: D
9. Y2K Technology Corporation has just paid a dividend of $0.40 per share.
The dividends are
expected to grow at 30% per year for the next two years and at 5% per year thereafter.
If the
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 10/05/2011 for the course FIN 819 taught by Professor Staff during the Spring '11 term at S.F. State.
 Spring '11
 Staff

Click to edit the document details