# I want you to answer these finance questions

#### Question 1 (1 point)

You are negotiating with a prospective employer. They offer you a signing bonus of \$2,000,000 today or a lump sum payment of \$2,500,000 three years from now. If you can earn 7% per year on your invested funds, which of the following is true?

Question 1 options:

 2) Take the signing bonus because it has the higher future value.

 3) Take the lump sum because it has the higher present value.

 4) Take the lump sum because it has the lower future value.

 5) Based on these numbers, you are indifferent between the two.

#### Question 2 (1 point)

On your first birthday you were given \$1, in a savings account earning 5% interest compounded annually. How much will you have in the account on your 40th birthday if you don’t withdraw any money before then?

Question 2 options:

 2) \$6.34

 3) \$6.70

 4) \$7.00

 5) \$7.04

#### Question 3 (1 point)

Your aunt just told you of a trust fund which will pay you \$100,000 at the end of 20 years. If you could invest that money today at 6% compounded semi-annually what is the present value of your trust fund?

Question 3 options:

 2) \$ 30,655.68

 3) \$ 31,180.47

 4) \$ 35,492.34

 5) \$100,000.00

#### Question 4 (1 point)

If you have \$1,000 today, and can earn 4.5% interest compounded quarterly on you money, how much will you have at the end of 4 years?

Question 4 options:

 2) \$1,192.52

 3) \$1,196.01

 4) \$1,219.05

 5) \$1,237.52

#### Question 5 (1 point)

If you have \$1,000 today, and want to save for a new car, and can get 4.0% compounded semi-annually, how much must you save each month to have \$10,000 at the end of 3 years?

Question 5 options:

 2) \$207.13

 3) \$223.95

 4) \$234.46

 5) \$241.14

#### Question 6 (1 point)

In order to help you through college, your parents just deposited \$30,000 into a bank account paying 8% interest. Starting next year, you plan to withdraw equal amounts from the account at the end of each of the next four years. What is the MOST you can withdraw annually?

Question 6 options:

 2) \$ 6,988.91

 3) \$ 7,133.84

 4) \$ 7,548.02

 5) \$ 9,057.62

#### Question 7 (1 point)

If you buy a new car, and after your \$1,000 down payment the payments are \$314.56 per month for 60 months, @ 8.5% compounded monthly, how much did you pay for the car?

Question 7 options:

 2) \$14,874.82

 3) \$15,874.82

 4) \$15,632.03

 5) \$14,070.90

#### Question 8 (1 point)

What is the effective rate of 8.5% compounded quarterly?

Question 8 options:

 2) 8.5%

 3) 8.6%

 4) 8.8%

 5) 9.2%

#### Question 9 (1 point)

If you will put \$100 per month in a savings account, and can earn 3.0% compounded continuously on that account, how much will you have at the end of 6.5 years?

Question 9 options:

 2) \$8,600.61

 3) \$8,612.44

 4) \$8,617.92

 5) \$8,631.61

#### Question 10 (1 point)

If you borrowed \$5,000 to be repaid at 9.5% interest compounded monthly over the next 24 months, how much would you still owe after the 18th. payment?

Question 10 options:

 2) \$1,430.60

 3) \$1,443.66

 4) \$1,514,06

 5) \$1,544.24

#### Question 11 (1 point)

Dizzy Corp. \$1,000 face amount bonds bearing a coupon rate of 15%, pays interest semiannually, have two years remaining to maturity, and are currently priced at \$980 per bond. What is their yield to maturity?

Question 11 options:

 2) 16.21%

 3) 16.57%

 4) 15.99%

 5) 16.25%

#### Question 12 (1 point)

What is the current market value of a bond that will pay a semiannual interest payment of \$50 each over the remainder of its 20 year life? Assume the bond has a \$1,000 face value and an 8% YTM.

Question 12 options:

 2) \$ 642.26

 3) \$1,135.90

 4) \$1,197.93

 5) \$1,215.62

#### Question 13 (1 point)

Suppose a share of preferred stock will pay an annual dividend of \$2.90 indefinitely. Returns on the stock of firms like this are currently running 15%. What is the value of one share of stock?

Question 13 options:

 2) \$13.65

 3) \$19.33

 4) \$31.25

 5) \$39.70

#### Question 14 (1 point)

Suppose Pale Hose, Inc. has just paid an annual dividend of \$1.40 per share. Sales and profits for Pale Hose are expected to grow at a rate of 5% per year. Its dividend is expected to grow by the same amount. If the required return is 10%, what is the value of a share of Pale Hose?

Question 14 options:

 2) \$15.25

 3) \$25.80

 4) \$28.00

 5) \$29.40

#### Question 15 (1 point)

You are considering a project that costs \$300 and has expected cash flows of \$110, \$121 and \$133.10 over the next three years. If the appropriate discount rate for the project’s cash flows is 10%, what is the net present value of this project?

Question 15 options:

 2) \$ 0.00

 3) \$ 0.71

 4) \$19.79

 5) \$64.10

#### Question 16 (1 point)

Consider the following cash flows, what is the IRR?
Year  0        1      2        3
CF -35,000   \$28,000  \$15,000  \$9,000

Question 16 options:

 2) 28.8%.

 3) 31.2%.

 4) 37.2%.

 5) 39.2%.

#### Question 17 (1 point)

Risk that affects a very large number of assets or companies, is called:

Question 17 options:

 2) Diversifiable risk.

 3) Systematic risk.

 4) Asset-specific risk.

 5) Total risk.

#### Question 18 (1 point)

If RM = 14%, RF = 2.5%, and Beta = 1.3, what is the (approx.) ROR?

Question 18 options:

 2) 16.8 %

 3) 15.9 %

 4) 15.1 %

 5) 14.0 %

#### Question 19 (1 point)

A portfolio is a(n):

Question 19 options:

 2) security that has a beta equal to the market beta.

 3) asset that has a beta greater than 1.0.

 4) new issue of securities that are being offered to the public.

 5) group of assets held by an investor.

#### Question 20 (1 point)

The concept of investing in a variety of negatively correlated assets to reduce risk is referred to as:

Question 20 options:

 2) split investing.

 3) the principle of diversification.

 4) the principle of elimination.

 5) the systematic risk principle.

#### Question 21 (1 point)

The return on which one of the following is used as the risk-free rate of return?

Question 21 options:

 2) long-term government bonds

 3) short-term corporate bonds

 4) U.S. Treasury bills

 5) the Consumer Price Index

#### Question 22 (1 point)

A sunk cost is:

Question 22 options:

 2) a cost for which there is no alternative option.

 3) another name for a fixed cost.

 4) a cost that has already been incurred and cannot be recouped.

 5) a form of erosion.

#### Question 23 (1 point)

The cash generated from a firm’s normal business activities is referred to as the firm’s:

Question 23 options:

 3) operating margin.

 4) addition to net working capital.

 5) operating cash flow.

#### Question 24 (1 point)

If a firm has a 100 percent dividend payout ratio, then the internal growth rate of the firm is:

Question 24 options:

 2) 100 percent.

 3) equal to the ROA.

 4) equal to the ROA divided by (1 – ROA).

 5) infinite.

#### Question 25 (1 point)

If you want to compute the weighted average cost of capital for a company, you need to know the;

Question 25 options:

 2) either the growth rate or Beta

 3) both the growth rate and the Beta

 4) the market average rate of growth

 5) none of the above

#### Question 26 (1 point)

If you have the weighted average cost of capital you can

Question 26 options:

 2) Compare it to that of companies in other industries

 3) Use it to determine how efficiently you are using assets

 4) Use it to determine how efficiently you are using capital

 5) Use it as a benchmark in Cost of Capital problems

#### Question 27 (1 point)

The cash flow from stockholders plus the cash flow from creditors should be equal to

Question 27 options:

 2) The cash flow from liabilities

 3) The cash flow from total debt

 4) The cost of capital

 5) The cost of new debt

#### Question 28 (1 point)

The difference between an ordinary annuity and an annuity due is

Question 28 options:

 2) The future value of the amount being considered

 3) The timing of the cash flows

 4) The difference between the average and effective interest rates

 5) The difference in one letter grade on this exam

#### Question 29 (1 point)

A AAA bond rating means

Question 29 options:

 2) The bond is in default and/or repayment of principal is in arrears

 3) This is the lowest grade of speculation and reflects a major risk exposure

 4) This is not a bond, but a privately placed loan issue

 5) This is a “school bond” issue

#### Question 30 (1 point)

The concept of a risk – return tradeoff is based on the idea that

Question 30 options:

 Risk and return sometimes are unrelated If you are willing to accept more risk you should get a higher rate of return in exchange Risk and return move in opposite directions none of the above

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