Finance 300 exam 1

Given an interest rate r, the Rule of 72 states that the time it will take for an investment to double in value equals approx. 72/r, where r is expressed as a percentage. True
Converting an annuity to an annuity due decreases the present value. False
If a project’s value is less than its required investment, then the project is attractive financially. False
Any sequence of equally spaced, level cash flows is called an annuity. An annuity is also known as a perpetuity. False
You should never compare cash flows occurring at different times without first discounting them to a common date. True
To calculate present value, we discount the future value by some interest rate r, the discount rate? True
For a given amount, the lower the discount rate, the less the present value. False
Financial markets and intermediaries allow investors and businesses to reduce and reallocate risks. True
The opportunity cost of capital is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm’s capital investments. True
The primary goal on any company should be to maximize current period profits. False
The liability of sole proprietors is limited to the amount of their investment in the company. False
Financial assets have value because they have claims on the firm’s real assets and that cash that those assets will produce. True
A successful investment is one that increases the value of the firm. True
Capital budgeting decisions are used to determine how to raise the cash necessary for investments. False
Assume the total expense for your current year in college equals 20,000. Approx. how much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount? $3,973
What is the minimum nominal rate of return you should accept, if you require a 4% real rate of return and the rate of inflation is expected to average 3.5% during the investment period? 7.64%
What is the present value of your trust fund if it promises to pay you a one-time payment of $50,000 on your 30th birthday (7 years from today) and earns 8.51 % compounded annually? $28,228.10
What is the effective annual interest rate on an account with an APR of 11% and quarterly compounding? 11.46%
In 5 years you will receive $1,000, what is it worth to you next year? r= 5%. $823
Approximately, what is the present value of the following set of cash flows at an interest rate of 5%, $3,000 today, $2,500 at the end of year one, and $4,500 at the end of year two? $9,500
Calculate the interest rate (graph). 22.45%
What is the present value of 4,000 to be received 9 years from now? r=5% $2,578
Today you want to invest $350 in a UNL hedge fund that promises an annual return of 15%. What do you expect the value of your investment to be 10 years from today? $1,416
The concept of compound interest refers to: payment of interest on previously earned interest and the principal amount.
Long-term financing decisions commonly occur in the: capital markets
Short-term financing decisions commonly occur in the: money markets
When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives: Nothing
A primary market would be utilized when: securities are initially issued.
Which of the following would be considered an advantage of the sole proprietorship form of organization? Profits taxed at only one level.
Which of the following would NOT be considered a real asset? A corporate bond.
Unlimited liability is faced by the owners of: sole proprietorship and partnerships.
The cost of capital: is the expected rate of return that shareholders can obtain in the financial markets on investments with the same risk as the firm’s capital.
Agency problems can best be characterized as: differing incentives between managers and owners.
Double taxation refers to: paying taxes on profits at the corporate level and dividends at the personal level.
Which of the following would be considered a capital budgeting decision? Deciding to expand into a new line of products, at a cost of $5 million.

Leave a Reply

Your email address will not be published. Required fields are marked *