Page 1 of 187
W07 Final Examination (Part 1) Corporate
Finance & Financial Management FIN 300
– W07 Final Examination (Part 1)
Question 1
Scenario: A company invests $50,000 in a project that promises
to return $10,000 annually for 7 years. The required rate of
return is 9%. What is the Net Present Value (NPV)?
A) $50,349
B) $50,000
C) $3,500
D) $349
Answer: D
Explanation: NPV = PV of inflows - initial investment. PV of
annuity = $10,000 × (1 - 1.09^-7)/0.09 = $10,000 × 5.03295
,Page 2 of 187
= $50,329.50. NPV = $50,329.50 - $50,000 = $329.50 ≈
$349.
Rationale: The NPV is positive but small, indicating the project
meets the required return. The annuity factor for 9%, 7 years is
approximately 5.03295.
Question 2
Scenario: You deposit $5,000 into an account earning 6%
compounded monthly. How much will you have after 3 years?
A) $5,955
B) $5,983
C) $6,000
D) $5,900
Answer: B
,Page 3 of 187
Explanation: FV = PV × (1 + r/n)^(n×t) = $5,000 × (1 +
0.06/12)^(12×3) = $5,000 × (1.005)^36 = $5,000 × 1.19668
= $5,983.40.
Rationale: Monthly compounding increases the effective annual
rate. The effective annual rate (EAR) = (1 + 0.005)^12 - 1 =
6.1678%.
Question 3
Scenario: A bond pays a 5% annual coupon and has 10 years
to maturity. The face value is $1,000. Comparable bonds yield
6%. What is the bond’s price?
A) $926
B) $1,000
C) $1,050
D) $1,080
, Page 4 of 187
Answer: A
Explanation: Bond price = PV of coupons + PV of face value.
Coupon = $50. PV annuity = $50 × (1 - 1.06^-10)/0.06 = $50
× 7.36009 = $368.00. PV of face = $1,000 × 1.06^-10 =
$558.39. Total = $926.39.
Rationale: When market yield exceeds coupon rate, the bond
sells at a discount. Here, 6% > 5%, so price < $1,000.
Question 4
Scenario: What is the present value of $20,000 received in 5
years if the discount rate is 8% compounded quarterly?
A) $13,400
B) $13,500
C) $13,600
D) $13,700
W07 Final Examination (Part 1) Corporate
Finance & Financial Management FIN 300
– W07 Final Examination (Part 1)
Question 1
Scenario: A company invests $50,000 in a project that promises
to return $10,000 annually for 7 years. The required rate of
return is 9%. What is the Net Present Value (NPV)?
A) $50,349
B) $50,000
C) $3,500
D) $349
Answer: D
Explanation: NPV = PV of inflows - initial investment. PV of
annuity = $10,000 × (1 - 1.09^-7)/0.09 = $10,000 × 5.03295
,Page 2 of 187
= $50,329.50. NPV = $50,329.50 - $50,000 = $329.50 ≈
$349.
Rationale: The NPV is positive but small, indicating the project
meets the required return. The annuity factor for 9%, 7 years is
approximately 5.03295.
Question 2
Scenario: You deposit $5,000 into an account earning 6%
compounded monthly. How much will you have after 3 years?
A) $5,955
B) $5,983
C) $6,000
D) $5,900
Answer: B
,Page 3 of 187
Explanation: FV = PV × (1 + r/n)^(n×t) = $5,000 × (1 +
0.06/12)^(12×3) = $5,000 × (1.005)^36 = $5,000 × 1.19668
= $5,983.40.
Rationale: Monthly compounding increases the effective annual
rate. The effective annual rate (EAR) = (1 + 0.005)^12 - 1 =
6.1678%.
Question 3
Scenario: A bond pays a 5% annual coupon and has 10 years
to maturity. The face value is $1,000. Comparable bonds yield
6%. What is the bond’s price?
A) $926
B) $1,000
C) $1,050
D) $1,080
, Page 4 of 187
Answer: A
Explanation: Bond price = PV of coupons + PV of face value.
Coupon = $50. PV annuity = $50 × (1 - 1.06^-10)/0.06 = $50
× 7.36009 = $368.00. PV of face = $1,000 × 1.06^-10 =
$558.39. Total = $926.39.
Rationale: When market yield exceeds coupon rate, the bond
sells at a discount. Here, 6% > 5%, so price < $1,000.
Question 4
Scenario: What is the present value of $20,000 received in 5
years if the discount rate is 8% compounded quarterly?
A) $13,400
B) $13,500
C) $13,600
D) $13,700
