exam 2 study guide

# exam 2 study guide - Question 1 10 out of 10 points You...

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Question 1 10 out of 10 points You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? Answer Correct Answer: The discount rate Question 2 0 out of 10 points Last year Rocco Corporation's sales were \$725 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later? Answer Correct Answer: \$970.21 Question 3 0 out of 10 points Pace Co. borrowed \$12,000 at a rate of 7.25%, simple interest , with

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interest paid at the end of each month. The bank uses a 360-day year. How much interest would Pace have to pay in a 30-day month? Answer Correct Answer: \$72.50 Question 4 0 out of 10 points Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? Answer Correct Answer: A bank loan's nominal interest rate will always be equal to or less than its effective annual rate. Question 5 0 out of 10 points Ten years ago, Lucas Inc. earned \$0.50 per share. Its earnings this year were \$6.20. What was the growth rate in earnings per share (EPS) over the 10- year period? Answer
Correct Answer: 28.63% Question 6 10 out of 10 points If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate. Answer Selected Answer: False Question 7 10 out of 10 points As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan). Answer Selected Answer: True Question 8 10 out of 10 points Starting to invest early for retirement reduces

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the benefits of compound interest. Answer Selected Answer: False Question 9 10 out of 10 points Some of the cash flows shown on a time line can be in the form of annuity payments while others can be uneven amounts. Answer Selected Answer: True Question 10 0 out of 10 points The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. The closer we are to the end of the loan's life, the smaller the percentage of the payment that will be a repayment of principal. Answer
False Question 2 10 out of 10 points What's the present value of a perpetuity that pays \$3,800 per year if the appropriate interest rate is 5%? Answer Selected Answer: \$76,000.00 Question 5 0 out of 10 points Your Aunt Ruth has \$450,000 invested at 6.5%, and she plans to retire. She wants to withdraw \$40,000 at the beginning of each year, starting immediately. How many years will it take to exhaust her funds, i.e., run the account down to zero? Answer

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## exam 2 study guide - Question 1 10 out of 10 points You...

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