ARE144SP10MT1_va-1

ARE144SP10MT1_va-1 - Name:_ Last 4 digits of your Student...

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Name:_____________________________ Last 4 digits of your Student ID Number:__________ Managerial Economics (ARE) 144 University of California, Davis, Spring 2010 Dr. John H Constantine Midterm 1, Thursday, April 22, 2010 130 TOTAL POINTS
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1 Part I: Multiple Choice (45 total points; each question is worth 3 points.) There are 15 multiple choice questions, each having only one correct answer. 1) A common criticism of the annual percentage rate (APR) is that it usually understates the true cost of borrowing. The APR may understate the cost of borrowing because it assumes: a) interest rates will always rise b) the loan always goes to maturity c) the actual life of the loan is shorter than maturity d) upfront fees should be ignored 2) When discussing time-value-of-money it is necessary to understand some key terminology. Which of the following terms refers to a fixed amount of money paid or received at the end of every period (i.e. a series of equal lump sums)? a) Future value b) Present value c) Ordinary annuity d) Annuity due 3) Which of the following is false regarding a tax sale? a) An accurate and complete description of the property is required to be posted for possible purchasers before the sale b) The property owner may not have had a court appearance through due process, thus creating a cloud on the title c) The line of authority for the sale may not be clear d) The purchaser is usually expected to pay all delinquent taxes at the time of sale 4) When lenders charge discount points (prepaid interest) on a loan, what impact does this have on the loan's yield? a) The yield on the loan will increase. b) The yield on the loan will decrease. c) The yield on the loan will be unaffected. d) The yield on the loan automatically becomes zero. 5) Standard mortgage loans require monthly payments typically composed of two components: interest and principal repayments. When scheduled mortgage payments are insufficient to pay all of the accumulating interest, causing some interest to be added to the outstanding balance after each payment shortfall, the loan is said to be: a) fully amortizing b) partially amortizing c) nonamortizing d) negatively amortizing 6) ________ is the process of going from present value to future value, whereas ________ is finding the present value of some future amount. a) Discounting; compounding b) Compounding; annualizing c) Compounding; discounting d) Discounting; leasing
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2 7) Consider the situation where you have won a $10 million lottery to be received in 25 annual equal payments of $400,000. What will happen to the present value of these winnings if the interest rate increases during the next 25 years?
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ARE144SP10MT1_va-1 - Name:_ Last 4 digits of your Student...

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