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FINA 3313 MID 1

by: Kelly cheng

FINA 3313 MID 1 FINA 3313

Kelly cheng

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FINA 3313 MID 1
Business Finance 3313
T. T. Thai
Study Guide
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This 43 page Study Guide was uploaded by Kelly cheng on Sunday November 1, 2015. The Study Guide belongs to FINA 3313 at University of Texas at Arlington taught by T. T. Thai in Fall 2015. Since its upload, it has received 406 views. For similar materials see Business Finance 3313 in Finance at University of Texas at Arlington.


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Date Created: 11/01/15
FINA 3313 Mid­Term 1 Practice questions 1. A successful investment is one that increases the value of the firm. A. True B. False 2. Pfizer's spending of $7.6 billion in 2006 on research and development of new drugs is an investment decision (capital budgeting decision) but not a financing decision. A. True B. False 3. The liability of sole proprietors is limited to the amount of their investment in the company. A. True B. False 4. The separation of ownership and management is one distinctive feature of corporations. A. True B. False 5. Shareholders welcome higher short­term profits even when they damage long­term profits. A. True B. False 6. Ethical decision making in business can be viewed as a long­term investment in reputation. A. True B. False 7. Financial analysts are involved in monitoring and controlling the risk associated with investment projects and financing decisions. A. True B. False 8. The primary goal of any company should be to maximize current period profits. A. True B. False 9. Corporations that do not issue financial securities such as stock or debt obligations: A. will not be able to increase sales. B. cannot be profitable. C. may not be able to generate sufficient funds to fulfill their needs. D. do not face double taxation of their profits. 10. The best criterion for success in a capital budgeting decision would be to: A. minimize the cost of the investment. B. maximize the number of capital budgeting projects. C. maximize the difference between cash inflows and cost. D. finance all capital budgeting projects with debt. 11. Which of the following is not a financing decision? A. Should the firm borrow money from a bank or sell bonds? B. Should the firm shut down an unprofitable factory? C. Should the firm buy or lease a new machine that it is committed to acquiring? D. Should the firm issue preferred stock or common stock? 12. The short­term decisions of financial managers are comprised of: A. capital structure decisions. B. investment decisions. C. financing decisions. D. both investment and financing decisions. 13. Which of the following would not be considered a financial asset? A. A patent B. A personal IOU C. A checking account balance D. A share of stock 14. Financial markets are used for trading: A. both real assets and financial assets. B. the goods and services produced by a firm. C. securities, such as shares of IBM. D. the raw materials used in manufacturing. 15. The stockholders in a sole proprietorship are represented by: A. the owner of the firm. B. the general partner of the firm. C. the board of directors of the firm. D. no one; sole proprietorships have no stockholders. 16. In a partnership form of organization, income tax liability, if any, is incurred by: A. the partnership itself. B. the partners individually. C. both the partnership and the partners. D. neither the partnership nor the partners. 17. Which of the following is not an advantage to incorporating a business? A. Easier access to financial markets B. Limited liability C. Becoming a permanent legal entity D. Profits taxed at the corporate level and the shareholder level 18. A board of directors is elected as a representative of the corporation's: A. top management. B. stakeholders. C. shareholders. D. customers. 19. "Double taxation" refers to: A. all partners paying equal taxes on profits. B. corporations paying taxes on both dividends and retained earnings. C. paying taxes on profits at the corporate level and dividends at the personal level. D. the fact that marginal tax rates are doubled for corporations. 20. Short­term financing decisions commonly occur in the: A. primary markets. B. secondary markets. C. capital markets. D. money markets. 21. Agency problems can best be characterized as: A. dislike of firm's bondholders by its equity holders. B. differing incentives between managers and owners. C. spending of corporate resources. D. friction between the primary and secondary markets. 22. Which of the following is least likely to represent an agency problem? A. Lavish spending on expense accounts B. Plush remodeling of the executive suite C. Excessive investment in "safe" projects D. Executive incentive compensation plans 23. Which of the following forms of compensation is most likely to align the interests of managers and shareholders? A. A fixed salary B. A salary that is linked to company profits C. A salary that is paid partly in the form of the company's shares D. A salary that is linked to the company's total market value 24. How may a reduction in cash dividends be in the best interests of current shareholders? A. A reduction of cash dividends is always in the best interests of current shareholders. B. The firm will have available cash to increase current investment and future profits. C. Reduced dividends increase managerial compensation, thus increasing their motivation. D. A reduction of cash dividends cannot be in the best interests of current shareholders. 25. Corporate financing comes ultimately from: A. savings by households and foreign investors. B. cash generated from the firm's operations. C. the financial markets and intermediaries. D. the issue of shares in the firm. 26. Which of the following statements is not characteristic of mutual funds? A. They are financial institutions. B. They raise money by selling shares to investors. C. They pool the savings of many investors. D. They offer professional management. 27. A primary market would be utilized when: A. investors buy or sell existing securities. B. shares of common stock are exchanged. C. securities are initially issued. D. a commission must be paid on the transaction. 28. How may a reduction in cash dividends be in the best interests of current shareholders? A. A reduction of cash dividends is always in the best interests of current shareholders. B. The firm will have available cash to increase current investment and future profits. C. Reduced dividends increase managerial compensation, thus increasing their motivation. D. A reduction of cash dividends cannot be in the best interests of current shareholders. 29. Which of the following is not typically considered a function of financial intermediaries? A. Providing a payment mechanism B. Investing in real assets C. Accumulating funds from smaller investors D. Spreading, or pooling risk among individuals 30. Who was responsible for the financial crisis of 2007­2009? A. The U.S. Federal Reserve, for its policy of easy money B. The U.S. government, for pushing banks to expand credit for low­income housing C. Bankers, who aggressively promoted and resold subprime mortgages D. All of these 31. If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has: A. no retained earnings. B. long­term debt. C. no accumulated depreciation. D. current assets. 32. One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks: A. can shift loan risk to their deposit customers. B. are motivated by the potential for profit. C. do not have any income tax liability. D. have information to evaluate creditworthiness. 33. During the Financial Crisis of 2007­2009, the U.S. government bailed out the following firms except: A. AIG. B. Fannie Mae. C. Lehman Brothers. D. all of these. 34. Which of the following items should not be included in a listing of current assets? A. Marketable securities B. Accounts payable C. Accounts receivable D. Inventories 35. In which of the following asset accounts are you least likely to find a difference between market value and book value? A. Cash B. Inventory C. Land D. Shareholders' equity 36. Which of the following statements about depreciation is correct? A. Depreciation is subtracted from cost of goods sold to calculate net income. B. When depreciation expense is incurred, cash balances are reduced. C. Depreciation expense does not affect net income. D. Depreciation reduces the book value of assets. 37. Long­term financing decisions commonly occur in the: A. option markets. B. secondary markets. C. capital markets. D. money markets. 38. Retained earnings result from: A. the sale of additional shares of stock to investors. B. income not paid to shareholders. C. an excess of assets over liabilities. D. market values that exceed book values. 39. Which of the following changes in working capital will result in an increase in cash flows? A. Increase in accounts payable B. Increase in inventories C. Increase in accounts receivable D. Decrease in other current liabilities 40. If market values of equity exceed book values of equity, then: A. equity has been depreciated too rapidly. B. the firm uses accrual­based accounting. C. profit potential is expected to be attractive. D. the firm is holding too much cash. 41. Investment banks like Merrill Lynch or Goldman Sachs: A. collect deposits and relend the cash to corporations and individuals. B. help companies sell their securities to investors. C. design and sell insurance policies for businesses. D. lend to corporations and investors in commercial real estate. 42. Which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period? A. High depreciation expense B. Reduction of inventory levels C. Acquisition of equipment D. Increase in accounts payable 43. Marginal tax rates are based on: A. net income. B. total income. C. an additional dollar of income. D. earnings before interest and taxes. 44. Which of the following cash outflows does not reduce a firm's net income? A. Income taxes B. Interest expense C. Dividends D. Depreciation expense 45. The concept of compound interest refers to: A. earning interest on the original investment. B. payment of interest on previously earned interest. C. investing for a multiyear period of time. D. determining the APR of the investment. 46. A stream of equal cash payments lasting forever is termed: A. an annuity. B. an annuity due. C. an installment plan. D. a perpetuity. 47. Which of the following will increase the present value of an annuity, other things equal? A. Increasing the interest rate B. Decreasing the interest rate C. Decreasing the number of payments D. Decreasing the amount of the payment 48. An interest rate that has been annualized using compound interest is termed the: A. simple interest rate. B. annual percentage rate. C. discounted interest rate. D. effective annual interest rate. 49. If interest is paid m times per year, then the per­period interest rate equals the: A. effective annual rate divided by m. B. compound interest rate times m. C. effective annual rate. D. annual percentage rate divided by m. 50. A financial intermediary provides financing for: A. individuals. B. companies. C. other organizations. D. all of these. 51. What is the future value of $30,000 on deposit for nine years at 9% simple interest? A. $65,156.80 B. $13,812.83 C. $40,856.80 D. $54,300.00 52. How much interest will be earned in the next year on an investment paying 10% compounded annually if $150 was just credited to the account for interest? A. $150 B. $165 C. $300 D. $135 53. How much must be deposited today in an account earning 9% annually to accumulate a 20% down payment to use in purchasing a car one year from now, assuming that the car's current price is $35,000, and inflation will be 4%? A. $7,140 B. $6,548 C. $6,422 D. $6,679 54. What is the present value of the following payment stream, discounted at 11% annually: $3,000 at the end of year 1, $4,000 at the end of year 2, and $5,000 at the end of year 3? A. $9,944.57 B. $9,855.29 C. $9,864.14 D. $9,605.15 55. A perpetuity of $4,000 per year beginning today is said to offer a 12% interest rate. What is its present value? A. $42,857.14 B. $37,333.33 C. $36,904.76 D. $33,333.33 56. $59,000 is borrowed, to be repaid in three equal, annual payments with 13% interest. Approximately how much principal is amortized with the first payment? A. $3,248.41 B. $24,987.80 C. $17,317.80 D. $7,670.00 57. Approximately how much should be accumulated by the beginning of retirement to provide a $4,100 monthly check that will last for 20 years, during which time the fund will earn 10% interest with monthly compounding? A. $885,600.00 B. $382,374.84 C. $541,200.00 D. $424,860.94 58. What is the minimum nominal rate of return you should accept, if you require a 8% real rate of return and the rate of inflation is expected to average 7.50% during the investment period? A. 15.50% B. 16.00% C. 16.10% D. 15.80% 59. What is the APR on a loan with an effective annual rate of 15.71% and weekly compounding of interest? (Assume 52 weeks in a year). A. 13.11% B. 13.61% C. 12.61% D. 14.61% 60. A car dealer offers payments of $1,522.59 per month for 48 months on a $57,000 car after making a $7,000 down payment. What is the loan's APR? A. 20.04% B. 23.04% C. 17.04% D. 22.04% 61. What is the future value of $10,000 on deposit for five years at 6% simple interest? A. $7,472.58 B. $10,303.62 C. $13,000.00 D. $13,382.26 62. How much must be deposited today in an account earning 6% annually to accumulate a 20% down payment to use in purchasing a car one year from now, assuming that the car's current price is $20,000, and inflation will be 4%? A. $3,774 B. $3,782 C. $3,925 D. $4,080 63. What APR is being earned on a deposit of $5,000 made ten years ago today if the deposit is worth $9,948.94 today? The deposit pays interest semi­annually. A. 3.56% B. 6.76% C. 7.00% D. 7.12%64. Approximately how long must one wait (to the nearest year) for an initial investment of  $1,000 to triple in value if the investment earns 8% compounded annually? A. 9 B. 14 C. 22 D. 25 65. In calculating the present value of $1,000 to be received 5 years from today, the discount factor has been calculated to be .7008. What is the apparent interest rate? A. 5.43% B. 7.37% C. 8.00% D. 9.50% 66. The salesperson offers, "Buy this new car for $25,000 cash or, with appropriate down payment, pay $500 per month for 48 months at 8% interest." Assuming that the salesperson does not offer a free lunch, calculate the "appropriate" down payment. A. $1,000.00 B. $4,520.64 C. $5,127.24 D. $8,000.00 67. The present value of the following cash flows is known to be $6,939.91; $500 today, $2,000 in one year, and $5,000 in two years. What discount rate is being used? A. 3% B. 4% C. 5% D. 6% 68. What is the present value of the following set of cash flows at an interest rate of 7%; $1,000 today, $2,000 at end of year one, $4,000 at end of year three, and $6,000 at end of year five? A. $9,731 B. $10,412 C. $10,524 D. $11,524 69. A cash­strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning two years from today. Assuming you're indifferent to cash versus credit, that you can invest at 10%, and that you want to receive $9,000 for the car, should you accept? A. Yes; present value is $9,510. B. Yes; present value is $11,372. C. No; present value is $8,645. D. No; present value is $7,461. 70. A corporation has promised to pay $1,000 twenty years from today for each bond sold now. No interest will be paid on the bonds during the twenty years, and the bonds are discounted at a 7% interest rate. Approximately how much should an investor pay for each bond? A. $70.00 B. $258.42 C. $629.56 D. $857.43 71. Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year. The annual interest rate is 12% and payments begin in one month. What is the present value of this two­year loan? A. $6,246.34 B. $6,389.78 C. $6,428.57 D. $6,753.05 72. $3,000 is deposited into an account paying 10% annually, to provide three annual withdrawals of $1,206.34 beginning in one year. How much remains in the account after the second payment has been withdrawn? A. $1,326.97 B. $1,206.34 C. $1,096.69 D. $587.32 73. How many monthly payments remain to be paid on an 8% mortgage with a 30 year amortization and monthly payments of $733.76, when the balance reaches one­half of the $100,000 mortgage? A. Approximately 268 payments B. Approximately 180 payments C. Approximately 92 payments D. Approximately 68 payments 74. What is the present value of a four­period annuity of $100 per year that begins two years from today if the discount rate is 9%? A. $297.21 B. $323.86 C. $356.85 D. $388.97 75. Your real estate agent mentions that homes in your price range require a payment of approximately $1,200 per month over 30 years at 9% interest. What is the approximate size of the mortgage with these terms? A. $128,035 B. $147,940 C. $149,140 D. $393,120 76. Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check that will last for 25 years, during which time the fund will earn 8% interest with monthly compounding? A. $261,500.00 B. $323,800.00 C. $578,700.00 D. $690,000.00 77. The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate. By approximately how much would the value change if these were annuities due? A. An increase of $10. B. An increase of $61. C. An increase of $100. D. Unknown without knowing number of payments. 78. Your retirement account has a current balance of $50,000. What interest rate would need to be earned in order to accumulate a total of $1,000,000 in 30 years, by adding $6,000 annually? A. 5.02% B. 7.24% C. 9.80% D. 10.07% 79. With $1.5 million in an account expected to earn 8% annually over the retiree's 30 years of life expectancy, what annual annuity can be withdrawn, beginning today? A. $112,150 B. $120,000 C. $123,371 D. $133,241 80. How much can be accumulated for retirement if $2,000 is deposited annually, beginning one year from today, and the account earns 9% interest compounded annually for 40 years? A. $87,200.00 B. $675,764.89 C. $736,583.73 D. $802,876.27 FINA 3313 Mid-Term 1 Practice questions 1. A successful investment is one that increases the value of the firm. A. True B. False 2. Pfizer's spending of $7.6 billion in 2006 on research and development of new drugs is an investment decision (capital budgeting decision) but not a financing decision. A. True B. False 3. The liability of sole proprietors is limited to the amount of their investment in the company. A. True B. False 4. The separation of ownership and management is one distinctive feature of corporations. A. True B. False 5. Shareholders welcome higher short-term profits even when they damage long-term profits. A. True B. False 6. Ethical decision making in business can be viewed as a long-term investment in reputation. A. True B. False 7. Financial analysts are involved in monitoring and controlling the risk associated with investment projects and financing decisions. A. True B. False 8. The primary goal of any company should be to maximize current period profits. A. True B. False 9. Corporations that do not issue financial securities such as stock or debt obligations: A. will not be able to increase sales. B. cannot be profitable. C. may not be able to generate sufficient funds to fulfill their needs. D. do not face double taxation of their profits. 10. The best criterion for success in a capital budgeting decision would be to: A. minimize the cost of the investment. B. maximize the number of capital budgeting projects. C. maximize the difference between cash inflows and cost. D. finance all capital budgeting projects with debt. 11. Which of the following is not a financing decision? A. Should the firm borrow money from a bank or sell bonds? B. Should the firm shut down an unprofitable factory? C. Should the firm buy or lease a new machine that it is committed to acquiring? D. Should the firm issue preferred stock or common stock? 12. The short-term decisions of financial managers are comprised of: A. capital structure decisions. B. investment decisions. C. financing decisions. D. both investment and financing decisions. 13. Which of the following would not be considered a financial asset? A. A patent B. A personal IOU C. A checking account balance D. A share of stock 14. Financial markets are used for trading: A. both real assets and financial assets. B. the goods and services produced by a firm. C. securities, such as shares of IBM. D. the raw materials used in manufacturing. 15. The stockholders in a sole proprietorship are represented by: A. the owner of the firm. B. the general partner of the firm. C. the board of directors of the firm. D. no one; sole proprietorships have no stockholders. 16. In a partnership form of organization, income tax liability, if any, is incurred by: A. the partnership itself. B. the partners individually. C. both the partnership and the partners. D. neither the partnership nor the partners. 17. Which of the following is not an advantage to incorporating a business? A. Easier access to financial markets B. Limited liability C. Becoming a permanent legal entity D. Profits taxed at the corporate level and the shareholder level 18. A board of directors is elected as a representative of the corporation's: A. top management. B. stakeholders. C. shareholders. D. customers. 19. "Double taxation" refers to: A. all partners paying equal taxes on profits. B. corporations paying taxes on both dividends and retained earnings. C. paying taxes on profits at the corporate level and dividends at the personal level. D. the fact that marginal tax rates are doubled for corporations. 20. Short-term financing decisions commonly occur in the: A. primary markets. B. secondary markets. C. capital markets. D. money markets. 21. Agency problems can best be characterized as: A. dislike of firm's bondholders by its equity holders. B. differing incentives between managers and owners. C. spending of corporate resources. D. friction between the primary and secondary markets. 22. Which of the following is least likely to represent an agency problem? A. Lavish spending on expense accounts B. Plush remodeling of the executive suite C. Excessive investment in "safe" projects D. Executive incentive compensation plans 23. Which of the following forms of compensation is most likely to align the interests of managers and shareholders? A. A fixed salary B. A salary that is linked to company profits C. A salary that is paid partly in the form of the company's shares D. A salary that is linked to the company's total market value 24. How may a reduction in cash dividends be in the best interests of current shareholders? A. A reduction of cash dividends is always in the best interests of current shareholders. B. The firm will have available cash to increase current investment and future profits. C. Reduced dividends increase managerial compensation, thus increasing their motivation. D. A reduction of cash dividends cannot be in the best interests of current shareholders. 25. Corporate financing comes ultimately from: A. savings by households and foreign investors. B. cash generated from the firm's operations. C. the financial markets and intermediaries. D. the issue of shares in the firm. 26. Which of the following statements is not characteristic of mutual funds? A. They are financial institutions. B. They raise money by selling shares to investors. C. They pool the savings of many investors. D. They offer professional management. 27. A primary market would be utilized when: A. investors buy or sell existing securities. B. shares of common stock are exchanged. C. securities are initially issued. D. a commission must be paid on the transaction. 28. How may a reduction in cash dividends be in the best interests of current shareholders? A. A reduction of cash dividends is always in the best interests of current shareholders. B. The firm will have available cash to increase current investment and future profits. C. Reduced dividends increase managerial compensation, thus increasing their motivation. D. A reduction of cash dividends cannot be in the best interests of current shareholders. 29. Which of the following is not typically considered a function of financial intermediaries? A. Providing a payment mechanism B. Investing in real assets C. Accumulating funds from smaller investors D. Spreading, or pooling risk among individuals 30. Who was responsible for the financial crisis of 2007-2009? A. The U.S. Federal Reserve, for its policy of easy money B. The U.S. government, for pushing banks to expand credit for low-income housing C. Bankers, who aggressively promoted and resold subprime mortgages D. All of these 31. If the balance sheet of a firm indicates that total assets exceed current liabilities plus shareholders' equity, then the firm has: A. no retained earnings. B. long-term debt. C. no accumulated depreciation. D. current assets. 32. One reason suggesting that banks may be better than individuals at matching lenders to borrowers is that banks: A. can shift loan risk to their deposit customers. B. are motivated by the potential for profit. C. do not have any income tax liability. D. have information to evaluate creditworthiness. 33. During the Financial Crisis of 2007-2009, the U.S. government bailed out the following firms except: A. AIG. B. Fannie Mae. C. Lehman Brothers. D. all of these. 34. Which of the following items should not be included in a listing of current assets? A. Marketable securities B. Accounts payable C. Accounts receivable D. Inventories 35. In which of the following asset accounts are you least likely to find a difference between market value and book value? A. Cash B. Inventory C. Land D. Shareholders' equity 36. Which of the following statements about depreciation is correct? A. Depreciation is subtracted from cost of goods sold to calculate net income. B. When depreciation expense is incurred, cash balances are reduced. C. Depreciation expense does not affect net income. D. Depreciation reduces the book value of assets. 37. Long-term financing decisions commonly occur in the: A. option markets. B. secondary markets. C. capital markets. D. money markets. 38. Retained earnings result from: A. the sale of additional shares of stock to investors. B. income not paid to shareholders. C. an excess of assets over liabilities. D. market values that exceed book values. 39. Which of the following changes in working capital will result in an increase in cash flows? A. Increase in accounts payable B. Increase in inventories C. Increase in accounts receivable D. Decrease in other current liabilities 40. If market values of equity exceed book values of equity, then: A. equity has been depreciated too rapidly. B. the firm uses accrual-based accounting. C. profit potential is expected to be attractive. D. the firm is holding too much cash. 41. Investment banks like Merrill Lynch or Goldman Sachs: A. collect deposits and relend the cash to corporations and individuals. B. help companies sell their securities to investors. C. design and sell insurance policies for businesses. D. lend to corporations and investors in commercial real estate. 42. Which of the following best explains the combination of a high level of sales combined with a low cash flow during an accounting period? A. High depreciation expense B. Reduction of inventory levels C. Acquisition of equipment D. Increase in accounts payable 43. Marginal tax rates are based on: A. net income. B. total income. C. an additional dollar of income. D. earnings before interest and taxes. 44. Which of the following cash outflows does not reduce a firm's net income? A. Income taxes B. Interest expense C. Dividends D. Depreciation expense 45. The concept of compound interest refers to: A. earning interest on the original investment. B. payment of interest on previously earned interest. C. investing for a multiyear period of time. D. determining the APR of the investment. 46. A stream of equal cash payments lasting forever is termed: A. an annuity. B. an annuity due. C. an installment plan. D. a perpetuity. 47. Which of the following will increase the present value of an annuity, other things equal? A. Increasing the interest rate B. Decreasing the interest rate C. Decreasing the number of payments D. Decreasing the amount of the payment 48. An interest rate that has been annualized using compound interest is termed the: A. simple interest rate. B. annual percentage rate. C. discounted interest rate. D. effective annual interest rate. 49. If interest is paid m times per year, then the per-period interest rate equals the: A. effective annual rate divided by m. B. compound interest rate times m. C. effective annual rate. D. annual percentage rate divided by m. 50. A financial intermediary provides financing for: A. individuals. B. companies. C. other organizations. D. all of these. 51. What is the future value of $30,000 on deposit for nine years at 9% simple interest? A. $65,156.80 B. $13,812.83 C. $40,856.80 D. $54,300.00 52. How much interest will be earned in the next year on an investment paying 10% compounded annually if $150 was just credited to the account for interest? A. $150 B. $165 C. $300 D. $135 53. How much must be deposited today in an account earning 9% annually to accumulate a 20% down payment to use in purchasing a car one year from now, assuming that the car's current price is $35,000, and inflation will be 4%? A. $7,140 B. $6,548 C. $6,422 D. $6,679 54. What is the present value of the following payment stream, discounted at 11% annually: $3,000 at the end of year 1, $4,000 at the end of year 2, and $5,000 at the end of year 3? A. $9,944.57 B. $9,855.29 C. $9,864.14 D. $9,605.15 55. A perpetuity of $4,000 per year beginning today is said to offer a 12% interest rate. What is its present value? A. $42,857.14 B. $37,333.33 C. $36,904.76 D. $33,333.33 56. $59,000 is borrowed, to be repaid in three equal, annual payments with 13% interest. Approximately how much principal is amortized with the first payment? A. $3,248.41 B. $24,987.80 C. $17,317.80 D. $7,670.00 57. Approximately how much should be accumulated by the beginning of retirement to provide a $4,100 monthly check that will last for 20 years, during which time the fund will earn 10% interest with monthly compounding? A. $885,600.00 B. $382,374.84 C. $541,200.00 D. $424,860.94 58. What is the minimum nominal rate of return you should accept, if you require a 8% real rate of return and the rate of inflation is expected to average 7.50% during the investment period? A. 15.50% B. 16.00% C. 16.10% D. 15.80% 59. What is the APR on a loan with an effective annual rate of 15.71% and weekly compounding of interest? (Assume 52 weeks in a year). A. 13.11% B. 13.61% C. 12.61% D. 14.61% 60. A car dealer offers payments of $1,522.59 per month for 48 months on a $57,000 car after making a $7,000 down payment. What is the loan's APR? A. 20.04% B. 23.04% C. 17.04% D. 22.04% 61. What is the future value of $10,000 on deposit for five years at 6% simple interest? A. $7,472.58 B. $10,303.62 C. $13,000.00 D. $13,382.26 62. How much must be deposited today in an account earning 6% annually to accumulate a 20% down payment to use in purchasing a car one year from now, assuming that the car's current price is $20,000, and inflation will be 4%? A. $3,774 B. $3,782 C. $3,925 D. $4,080 63. What APR is being earned on a deposit of $5,000 made ten years ago today if the deposit is worth $9,948.94 today? The deposit pays interest semi-annually. A. 3.56% B. 6.76% C. 7.00% D. 7.12%64. Approximately how long must one wait (to the nearest year) for an initial investment of $1,000 to triple in value if the investment earns 8% compounded annually? A. 9 B. 14 C. 22 D. 25 65. In calculating the present value of $1,000 to be received 5 years from today, the discount factor has been calculated to be .7008. What is the apparent interest rate? A. 5.43% B. 7.37% C. 8.00% D. 9.50% 66. The salesperson offers, "Buy this new car for $25,000 cash or, with appropriate down payment, pay $500 per month for 48 months at 8% interest." Assuming that the salesperson does not offer a free lunch, calculate the "appropriate" down payment. A. $1,000.00 B. $4,520.64 C. $5,127.24 D. $8,000.00 67. The present value of the following cash flows is known to be $6,939.91; $500 today, $2,000 in one year, and $5,000 in two years. What discount rate is being used? A. 3% B. 4% C. 5% D. 6% 68. What is the present value of the following set of cash flows at an interest rate of 7%; $1,000 today, $2,000 at end of year one, $4,000 at end of year three, and $6,000 at end of year five? A. $9,731 B. $10,412 C. $10,524 D. $11,524 69. A cash-strapped young professional offers to buy your car with four, equal annual payments of $3,000, beginning two years from today. Assuming you're indifferent to cash versus credit, that you can invest at 10%, and that you want to receive $9,000 for the car, should you accept? A. Yes; present value is $9,510. B. Yes; present value is $11,372. C. No; present value is $8,645. D. No; present value is $7,461. 70. A corporation has promised to pay $1,000 twenty years from today for each bond sold now. No interest will be paid on the bonds during the twenty years, and the bonds are discounted at a 7% interest rate. Approximately how much should an investor pay for each bond? A. $70.00 B. $258.42 C. $629.56 D. $857.43 71. Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year. The annual interest rate is 12% and payments begin in one month. What is the present value of this two-year loan? A. $6,246.34 B. $6,389.78 C. $6,428.57 D. $6,753.05 72. $3,000 is deposited into an account paying 10% annually, to provide three annual withdrawals of $1,206.34 beginning in one year. How much remains in the account after the second payment has been withdrawn? A. $1,326.97 B. $1,206.34 C. $1,096.69 D. $587.32 73. How many monthly payments remain to be paid on an 8% mortgage with a 30 year amortization and monthly payments of $733.76, when the balance reaches one-half of the $100,000 mortgage? A. Approximately 268 payments B. Approximately 180 payments C. Approximately 92 payments D. Approximately 68 payments 74. What is the present value of a four-period annuity of $100 per year that begins two years from today if the discount rate is 9%? A. $297.21 B. $323.86 C. $356.85 D. $388.97 75. Your real estate agent mentions that homes in your price range require a payment of approximately $1,200 per month over 30 years at 9% interest. What is the approximate size of the mortgage with these terms? A. $128,035 B. $147,940 C. $149,140 D. $393,120 76. Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check that will last for 25 years, during which time the fund will earn 8% interest with monthly compounding? A. $261,500.00 B. $323,800.00 C. $578,700.00 D. $690,000.00 77. The present value of an annuity stream of $100 per year is $614 when valued at a 10% rate. By approximately how much would the value change if these were annuities due? A. An increase of $10. B. An increase of $61. C. An increase of $100. D. Unknown without knowing number of payments. 78. Your retirement account has a current balance of $50,000. What interest rate would need to be earned in order to accumulate a total of $1,000,000 in 30 years, by adding $6,000 annually? A. 5.02% B. 7.24% C. 9.80% D. 10.07% 79. With $1.5 million in an account expected to earn 8% annually over the retiree's 30 years of life expectancy, what annual annuity can be withdrawn, beginning today? A. $112,150 B. $120,000 C. $123,371 D. $133,241 80. How much can be accumulated for retirement if $2,000 is deposited annually, beginning one year from today, and the account earns 9% interest compounded annually for 40 years? A. $87,200.00 B. $675,764.89 C. $736,583.73 D. $802,876.27


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