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Finance 3101 Keen Final Exam with
Questions and Answers
The primary operating goal should be to maximize the long-run stock price, or the intrinsic value. - Correct Ans: ✔✔The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to $1,464 - Correct Ans: ✔✔What would the future value of $1,000 be after 4 years at 10% compound interest? N = 10, R = 6.0%, PV = - $500 million, PMT = $0, solve for FV = $895. - Correct Ans: ✔✔A company's 2015 sales were $500 million. If sales grow at 6.0% per year, how large will they be 10 years later, in 2025, in millions? N = 10, PV = - $6,045, PMT = $500, FV = $10,000, solve for R = 12.0%. - Correct Ans: ✔✔A company offers to sell you a bond, with a par value of $10,000, for $6,045. Annual coupons of $500 will be paid until the bond matures 10 years from now, at which time it will be redeemed for $10,000. The next coupon will be paid a
year from today. What interest rate would you earn if you bought this bond at the offer price? N = 5, PV = - $1.50, PMT = $0, FV = $2.00, solve for R = 5.9%. - Correct Ans: ✔✔Sims Inc. earned $1.50 per share in 2012. Five years later, in 2017, it earned $2.00. What was the growth rate in Sims' earnings per share (EPS) over the 5- year period? PV = - $1, PMT = $0, FV = $2, R = 3.2%. Solve for N = 22.0 years. - Correct Ans: ✔✔How long would it take $100 to double if it were invested in a bank that pays 3.2% interest per year? N = 5, R = 6%, PV = $-, PMT = - $60. Solve for FV = $338.2. - Correct Ans: ✔✔You want to buy a house, 5 years from now, and you plan to save $60,000 per year, beginning one year from today. You will deposit the money in an account that pays 6.0% interest. How much will you have just after you make the 5th deposit, 5 years from now (in $'000)?
from today. In addition, on the 20 th anniversary (when the last payment of $100,000 occurs), he wants to withdraw a lump-sum of $250,000 (in addition to the last receipt of $100,000). The going rate on such annuities is 4.0%. How much would it cost him to buy such an annuity today (in $'000)? PMT = 100000, R = 7%, PV = - 1000000, FV = -. Solve for N = 17.8 years. - Correct Ans: ✔✔Your father has $1 million invested earning a return of 7%, and he now wants to retire. He wants to withdraw $100,000 at the end of each year, beginning at the end of this year. How many years will it take to exhaust his funds, i.e., run the account down to zero? PMT = 1000000, N = 20, PV = - 10000000, FV = -. Solve for R = 7.8%. - Correct Ans: ✔✔You just won the state lottery. The state gives you the choice of $10 million today or a 20-year annuity of $1 million, with the first payment coming one year from today. What rate of return is built into the annuity?
N = 5, R = 5%, PMT = - 1000, FV = - 1500. Solve for PV = $5,505. - Correct Ans: ✔✔What's the present value of a 5-year ordinary annuity of $1,000 per year plus an additional $1,500 at the end of year 5 if the interest rate is 5.0%? PV = $1,000/.006 = $166,667. - Correct Ans: ✔✔What's the present value of a perpetuity that pays $1,000 per month, with the first payment one month from today, if the appropriate monthly interest rate is 0.6%? PV = $2,000/1.025 1 + $3,000/1.025 2 + $5,000/1.025 3 = $9,449.66. - Correct Ans: ✔✔An investment promises the following cash flow stream: $2,000 at the end of Year 1 (or at T=1); $3,000 at the end of Year 2; and $5,000 at the end of Year
- At a discount rate of 2.5%, what is the present value of the cash flow stream? PV = $1,000 x 1.025 3 + $3,500 x 1.025 2 + $5,500 = $10,254.08. - Correct Ans: ✔✔At a rate of 2.5%, what is the future value (measured at the end of year 4) of the following cash flow stream: $0 at Time 0; $1,000 at the end of Year 1;
$1,000. What is their yield to maturity? If a coupon bond is selling for par, then the coupon rate is equal to the yield to maturity and the current yield. The implication of this is the capital gains yield is zero (the price remains at par). - Correct Ans: ✔✔A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is NOT CORRECT?
