FI 3300 (CORPORATION
FINANCE) MIDTERM 1 EXAM
WITH OBJECTIVELY CORRECT
QUESTIONS AND ANSWERS
Your neighbor offers you an investment opportunity which will
pay a single lump sum of $2,000 five years from today. The
investment requires a single payment of $1,500 today. What is the
annual rate of return on this investment?
5.92%
Kerri James is considering the purchase of a car. She wants to
buy the new VW Beetle, which will cost her $17,600. She will
finance 90% of the purchase price (i.e., make a 10% down
payment) at an interest rate of 5.9 percent, with monthly
payments over three years. How much money will she still owe on
the loan at the end of one year (to the nearest dollar)?
$10,868
You are considering two perpetuities which are identical in every
way except for the when the perpetuity payments will begin.
Perpetuity A will begin making annual payments of a fixed
amount, with the first payment being made two years from today.
Perpetuity B pays the same fixed annual payment, but will make
the first payment one year from today. Which of the following
statements is most correct?
a. The PV of perpetuity A is greater than the PV of perpetuity B
by the amount of the fixed payment.
b. The PV of perpetuity B is greater than the PV of perpetuity A
, by the amount of the fixed payment.
c. The PV of perpetuity A is equal to the PV of perpetuity B.
d. The PV of perpetuity A is greater than the PV of perpetuity B
by the present value of the amount of the fixed payment.
e. The PV of perpetuity B is greater than the PV of perpetuity A
by the present value of the amount of the fixed payment.
e. The PV of perpetuity B is greater than the PV of perpetuity A by the
present value of the amount of the fixed payment.
Mike Moneyminder has a 25-year, $200,000 mortgage with a
nominal interest rate of 8 percent and monthly compounding.
Which of the following statements regarding his mortgage is most
correct?
a. The proportion of the monthly payment that represents interest
will be lower for the last payment than for the first payment on
the loan.
b. The monthly payments will increase over time.
c. The total dollar amount of principal being paid off each month
gets larger as the loan approaches maturity.
d. Statements a and c are correct.
e. Statements b and c are correct.
Statements a and c are correct.
You plan to deposit money in a savings account earning 6%
annually. You will make 4 equal deposits of $8,000 each. The first
deposit will be made today (t = 0). No deposits will be made after
the fourth deposit. What will be the accumulated sum available at
the end of 10 years?(Round your answer to the nearest $1)
$52,622
Due to the rising price of gasoline, Miss Savealot has decided to
purchase a more fuel efficient car. This car's sticker price is
$35,180 and Miss Savealot has $3,060 for down payment. To
FINANCE) MIDTERM 1 EXAM
WITH OBJECTIVELY CORRECT
QUESTIONS AND ANSWERS
Your neighbor offers you an investment opportunity which will
pay a single lump sum of $2,000 five years from today. The
investment requires a single payment of $1,500 today. What is the
annual rate of return on this investment?
5.92%
Kerri James is considering the purchase of a car. She wants to
buy the new VW Beetle, which will cost her $17,600. She will
finance 90% of the purchase price (i.e., make a 10% down
payment) at an interest rate of 5.9 percent, with monthly
payments over three years. How much money will she still owe on
the loan at the end of one year (to the nearest dollar)?
$10,868
You are considering two perpetuities which are identical in every
way except for the when the perpetuity payments will begin.
Perpetuity A will begin making annual payments of a fixed
amount, with the first payment being made two years from today.
Perpetuity B pays the same fixed annual payment, but will make
the first payment one year from today. Which of the following
statements is most correct?
a. The PV of perpetuity A is greater than the PV of perpetuity B
by the amount of the fixed payment.
b. The PV of perpetuity B is greater than the PV of perpetuity A
, by the amount of the fixed payment.
c. The PV of perpetuity A is equal to the PV of perpetuity B.
d. The PV of perpetuity A is greater than the PV of perpetuity B
by the present value of the amount of the fixed payment.
e. The PV of perpetuity B is greater than the PV of perpetuity A
by the present value of the amount of the fixed payment.
e. The PV of perpetuity B is greater than the PV of perpetuity A by the
present value of the amount of the fixed payment.
Mike Moneyminder has a 25-year, $200,000 mortgage with a
nominal interest rate of 8 percent and monthly compounding.
Which of the following statements regarding his mortgage is most
correct?
a. The proportion of the monthly payment that represents interest
will be lower for the last payment than for the first payment on
the loan.
b. The monthly payments will increase over time.
c. The total dollar amount of principal being paid off each month
gets larger as the loan approaches maturity.
d. Statements a and c are correct.
e. Statements b and c are correct.
Statements a and c are correct.
You plan to deposit money in a savings account earning 6%
annually. You will make 4 equal deposits of $8,000 each. The first
deposit will be made today (t = 0). No deposits will be made after
the fourth deposit. What will be the accumulated sum available at
the end of 10 years?(Round your answer to the nearest $1)
$52,622
Due to the rising price of gasoline, Miss Savealot has decided to
purchase a more fuel efficient car. This car's sticker price is
$35,180 and Miss Savealot has $3,060 for down payment. To
