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Exam1_sample_questions

# Exam1_sample_questions - FINA 363 Sample Exam Questions...

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FINA 363 °Sample Exam Questions Introductory Concepts 1. Which of the following statements is incorrect ? (a) Maximizing the stock price (or shareholder wealth) is the main objective of a manager, but she/he sometimes strays from this goal due to agency problems. (b) According to the Fisher equation, the real interest rate is usually negative when the nominal interest rate is higher than expected in°ation. (c) The ±ask²price is the price at which dealers sell securities and is higher than the ±bid²price. (d) NASDAQ is an example of the over-the-counter (OTC) market. 2. In ³nancial markets, dealers maintain inventory and quote ±bid²and ±ask²prices. The bid price is the price at which dealers securities (e.g. from/to you) and is than the ask price. The Time Value of Money 3. You put \$20 ; 000 in a college trust fund for your children today. In order for the balance of the fund to become \$50 ; 000 eighteen (18) years from today, what average annual rate of return ( i ) must this fund earn? 4. If the interest rate is 8% per year (annual compounding), what is the future value of \$8 ; 888 eight years from today (at the end of 8 th year)? 5. In order to support your daughter´s (son´s) college education, you decide to save a ³xed amount in a college trust fund at the end of every year for eighteen (18) years. You would like to have \$80 ; 000 in the fund eighteen (18) years from today. When the average annual rate of return on the fund is 5 percent, how much do you need to save each year? 1

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(a) \$1 ; 847 (b) \$2 ; 136 (c) \$2 ; 844 (d) \$4 ; 444 (e) \$6 ; 844
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