Test 1 - Exam 1 Name Principles of Financial...

Exam # 1
Name: _ September 20, 2012
Principles of Financial Management/ggitlen
All questions are of equal weight.
1. The price of a bond is calculated by summing the present value of 2 sets of future cash
flows. The first is an annuity of equal interest payments and the second is a single cash
flow of the (return of the) face amount occurring on the final payment date. We express
this mathematically as:
If the Face Amount of a bond is $1000, and the bond pays interest of $80 per year for 10
years, what is the price of this bond? Assume.
a. $633.02
b. $875.68
c. $1000.00
d. $1276.95
e. $1345.54
2. Ashley’s cousin, Vinnie, the loan shark charges 2%/day on his loans. Since he has not
had the benefit of a finance course, he charges simple interest. Accordingly, how many
days would a $1000 loan from Vinnie turn into a $2000 debt for the borrower?
3. After taking this course, and learning about compounding interest, Vinnie is now careful
to tell his customers that his rate is “2% compounded daily”. Under this condition, how
many days will it take for the same borrower of $1000 to owe Vinnie $2000?

4. Given the tax rates as shown, what are the taxes due for a firm with taxable income of
$310,000?
Taxable Income Tax Rate
$ 0 - 50,000 15%
50,001 - 75,000 25%
75,001 - 100,000 34%
100,001 - 335,000 39%
5. For the above problem what is the marginal tax rate?
a. 21.38 percent
b. 15.00 percent
c. 25.00 percent
d. 33.60 percent
e. 39.00 percent