Exam 1 Practice problems
Note:
For additional practice material, go to:
www.mhhe.com/rwj
.
Click on the textbook for this
course and then go to the online learning center.
1.
Which of the following is a disadvantage of the corporation compared to a sole
proprietorship?
A. The owners of the corporation have unlimited liability for the firm's debts.
B. The double taxation of dividends.
C. The corporation has an unlimited life.
D. Dividends received by the corporation's shareholders are taxexempt.
E. The liquidity of the stock.
Answer:
B
2.
You are planning to retire in 30 years.
You estimate that you will need $80,000 each year for
the 20 years following your retirement.
You currently have $7,000. If you can earn 9%
compounded semiannually on your money, how much will you need to invest at the end of
each year for the next 30 years in order to meet your retirement goal? (
Hint:
Set up two
timelines, where the PV of the second one is the FV of the first one.)
Answer = $4,391.48 per year
3.
If the monthly periodic rate is 1%, the proper phrase to describe the APR is:
A.
12% compounded annually
B.
1% compounded monthly
C.
12% compounded monthly
D.
12.68% per year
Answer:
C
4.
Your mutual fund is expected to grow at the rate of 8% per year. You are going to withdraw
$1,000 from this fund today, and another $1,000 at the beginning of each year for three more
years. How much must there be in the account today in order for the account to reduce to a
balance of zero after the last withdrawal?
Answer:
$3,577.10
5.
After losing a lawsuit related to an auto accident, NFW Tire Corp. is required to pay the
victim $8,000 per month for 10 years, starting one month from now. The company places
$725,795 in a special interestbearing account to fund these payments. What annual rate of
return (EAR) on the account must they be assuming?
Answer:
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 Spring '12
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