Fin 308 test 1 answer key

Will decrease the supply of loanable funds c will

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Unformatted text preview: : 37-38 Level: Medium 37. Upon graduating from college this year you expect to earn $25,000 per year. If you get your MBA, in one year you can expect to start at $35,000 per year. Over the year, inflation is expected to be 5%. In today's dollars, how much additional (less) money will you make from getting your MBA (to the nearest dollar) in your first year? A) -$2,462 B) $8,333 C) $8,750 D) $9,524 E) $10,000 Answer: B Page: 47 Level: Difficult Response: (35,000 / 1.05) - 25,000 38. Investment A pays 8% simple interest for 10 years. Investment B pays 7.75% interest for 10 years. Both require an initial $10,000 investment. The future value of A minus the future value of B is equal to _____ (to the nearest penny). A) $2,500.00 B) -$2,500.00 C) $1,643.32 D) $3,094.67 E) -$3,094.67 Answer: E Page: 26 Level: Difficult Response: [10000 + (800 v 10)] ± [10000 v 1.077510] 39. If a $10,000 par T-Bill has a 9.5% discount and a 180 day maturity, what is the price of the T-Bill? 14 Saunders, Financial Markets and Institutions, 2/e Chapter 1 A) B) C) D) E) Introduction $9,050 $9,525 $9,532 $9,675 None of the above Answer: B Page: 35-36 Level: Easy Response: 9525=10,000 v [1-(0.095*180/360)] 40. A 90 day T-Bill is selling for $9,825. The par is $10,000. The EAR on the T-Bill is A) 7.00% B) 7.22% C) 7.29% D) 7.42% E) 7.54% Answer: D Page: 35-36 Level: Medium Response: (10,000 / 9825)(365 / 90) ± 1 41. Suppose that $10 million face value commercial paper with a 270 day maturity is selling for $9.5 million. What is the EAR on the paper? A) 5.26% B) 7.11% C) 7.32% D) 9.45% E) None of the above Answer: E Page: 36-37 Level: Medium Response: {10 mill / 9.5 mill}365 / 270 ± 1 = 7.18% Saunders, Financial Markets and Institutions, 2/e 15 42. A $1 million jumbo CD is quoting a 6.25% interest rate on 180 day maturity CDs. How much money could you withdraw in 180 days if you invest in the CD? A) $1,000,000 B) $1,062,500 C) $1,031,250 D) $1,030,822 E) None of the above Answer: C Page: 35-36 Level: Medium Response: 1 mill v [1 + (0.0625 v 180/360)] 43. An investor wants to be able to buy 4% more goods and services in the future in order to induce her to invest today. During the investment period prices are expected to rise by 2%. Which statement(s) below is/are true. I. 4% is the desired real rate of interest II. 6% is the approximate nominal rate of interest required III. 2% is the expected inflation rate over the period A) I only B) II only C) III only D) I and II only E) I, II and III are true Answer: E Page: 47 Level: Difficult 44. Classify each of the following in terms of their effect on interest rates (increase or decrease): I. Perceived risk of financial securities increases II. Near term spending needs decrease III. Future profitability of real investments increases A) I increases, II increases, III increases B) I increases, II decreases, III decreases C) I decreases, II increases, III increases D) I decreases, II decreases, III decreases E) None of the above Answe...
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This note was uploaded on 09/23/2013 for the course FIN 308 taught by Professor Spivey during the Fall '08 term at Clemson.

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