Week13_TutorialQuestions - SCHOOL OF BANKING AND FINANCE...

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FINS 1613 Tutorial Questions 1 SCHOOL OF BANKING AND FINANCE FINS1613 BUSINESS FINANCE Semester 2, 2011 TUTORIAL QUESTIONS WEEK 13 – REVISION 1. You deposited $1,000 in a savings account that pays 8 percent interest, compounded quarterly. Eighteen months later, you decide to close out your account. How much money will you receive? a. $1,171 b. $1,126 c. $1,082 d. $1,163 e. $1,008 2. What is the primary corporate objective? a. To maximise capital b. To maximise shareholder wealth c. To minimise capital d. To minimise shareholder wealth e. To minimise shareholder risk 3. Which of the following statements is most correct? a. A 5-year $100 annuity due will have a higher present value than a 5-year $100 ordinary annuity. b. A 15-year mortgage will have larger monthly payments than a 30-year mortgage of the same amount and same interest rate. c. If an investment pays 10 percent p.a. interest compounded annually, its effective rate will also be 10 percent. d. Statements a and c are correct. e. All of the statements above are correct.
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FINS 1613 Tutorial Questions 2 4. Your bank account pays an 8 percent nominal rate of interest. The interest is compounded quarterly. Which of the following statements is most correct? a. The periodic rate of interest is 2 percent and the effective rate of interest is 4 percent. b. The periodic rate of interest is 8 percent and the effective rate of interest is greater than 8 percent. c. The periodic rate of interest is 4 percent and the effective rate of interest is 8 percent. d. The periodic rate of interest is 8 percent and the effective rate of interest is 8 percent. e. The periodic rate of interest is 2 percent and the effective rate of interest is greater than 8 percent. 5. A bond with 6 years to maturity and sells at par has an 8 percent semi-annual coupon (that is, the bond pays a $40 coupon every six months). Another bond of equal risk and maturity pays 8 percent interest annually. Both bonds are non-callable and have face values of $1,000. What is the price of the bond that pays annual interest? a. $689.08 b. $712.05 c. $980.43 d. $986.72 e. $992.64 6. A stock's dividend is expected to grow at a constant rate of 5 percent a year. Which of the following statements is most correct? a. The expected return on the stock is 5 percent a year. b. The stock's dividend yield is 5 percent. c. The stock's price one year from now is expected to be 5 percent higher. d. Statements a and c are correct.
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This note was uploaded on 10/20/2011 for the course COMMERCE 3502 taught by Professor All during the One '11 term at University of New South Wales.

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Week13_TutorialQuestions - SCHOOL OF BANKING AND FINANCE...

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