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Spring 2011 Midterm 1 Solutions

# Spring 2011 Midterm 1 Solutions - Solutions to Midterm I...

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Solutions to Midterm I, FIN 350, Spring 2011 Form Answer Form Answer A B A B 1 2 A 14 15 B 2 7 B 15 16 D 3 4 D 16 17 A 4 1 C 17 14 A 5 3 B 18 18 C 6 8 D 19 19 E 7 5 C 20 20 A 8 6 C 21 21 A 9 9 A 22 25 E 10 13 C 23 22 B 11 12 B 24 23 E 12 10 A 25 24 D 13 11 E Solutions: 1. (Comp.) Time value concepts Answer: a MEDIUM 2. (5-18) Amortization Answer: b MEDIUM 3. (5-4) Finding I Answer: d EASY Solution: N 5 PV \$747.25 PMT \$0 FV \$1,000.00 I/YR 6.00% 4. (5-15) FV, semiannual compounding Answer: c MEDIUM Years 5 Periods/Yr 2 Nom. I/YR 6.0% N = Periods 10 PMT \$0 I = I/Period 3.0% PV \$1,500 Could be found using a calculator, an equation, or Excel. FV = \$2,016 Note that we must first convert to periods and rate per period. 5. (5-15) Non-annual compounding Answer: b MEDIUM/HARD Interest rate 4.0% Periods/year 4 Years on Quarters Ending Quarterly rate 1.0% Deposit on Deposit Amount 1st deposit \$2,500 3 12 \$2,817.06 2nd deposit \$5,000 2 8 \$5,414.28 3rd deposit \$7,500 1 4 \$7,804.53 6. APR vs. Effective Annual Rate Answer: d MEDIUM

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EAR = (1+15%/12) 12 -1 = 16.075% or 16.08% 7. PV of an uneven CF stream Answer: c Diff: E Time Line: 0 1 2 3 4 5 6 7 8 9 Years | | | | | | | | | | PV = ? 2,000 2,000 2,000 2,000 2,000 3,000 3,000 3,000 4,000 14% Financial calculator solution: Using cash flows Inputs: CF 0 = 0; CF 1 = 2000; N j = 5; CF 2 = 3000; N j = 3; CF 3 = 4000; I = 14. Output:
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Spring 2011 Midterm 1 Solutions - Solutions to Midterm I...

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