Posted: September 16th, 2017

Texas 14FABUS305350 BUSINESS FINANCE exam 1

Question 1

1. At age 20 you invest $1,000 that earns 7 percent each year. At age 30 you invest $1,000 that earns 10 percent per year. In which case would you have more money at age 60?

   		At age 20 invest $1,000 at 7 percent.
   		At age 30 invest $1,000 at 10 percent.
   		Both yield the same amount at age 60.
   		There is not enough information to determine which case earns the most money at age 60.

4 points

Question 2

1. What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?

   		$204.17
   		$440.80
   		$1,197.81
   		$1,938.96

4 points

Question 3

1. How are present values affected by changes in interest rates?

   		The lower the interest rate, the larger the present value will be.
   		The higher the interest rate, the larger the present value will be.
   		Present values are not affected by changes in interest rates.
   		One would need to know the future value in order to determine the impact.

4 points

Question 4

1. Assume that you contribute $200 per month to a retirement plan for 15 years. Then you are able to increase the contribution to $400 per month for another 25 years. Given a 5 percent interest rate, what is the value of your retirement plan after 40 years?

   		$424,305.97
   		$24,159.95
   		$28,475.66
   		$72,479.86

4 points

Question 5

1. Compute the future value in year 5 of a $2,000 deposit in year 1 and another $2,500 deposit at the end of year 3 using a 6% interest rate.

   		$5,333.95
   		$5,653.99
   		$5,850.00
   		$6,022.02

4 points

Question 6

1. If you can make 6% interest rate at a bank and inflation rate is 2.5%, which answer is the closest to the real interest rate?

   		3.50%
   		3.41%
   		3.45%
   		3.48%

4 points

Question 7

1. Solving for Rates What annual rate of return is earned on a $1,000 investment when it grows to $1,650 in five years?

   		1.65%
   		6.50%
   		9.53%
   		10.53%

4 points

Question 8

1. Pheobe realizes that she has charged too much on her credit card and has racked up $7,000 in debt. If she can pay $200 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt?

   		28.63 months
   		35.00 months
   		47.71 months
   		48.68 months

4 points

Question 9

1. Which is not a remedy to the agency problems between managers and stockholders?

   		Auditing
   		Matching 3% of salaries on 401 accounts for all employees.
   		Granting stock options to executives.
   		Analyst monitoring

4 points

Question 10

1. Many people who want to start investing for their future want to start today which implies an annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are referred to as

   		ordinary annuities.
   		annuities due.
   		perpetuities.
   		present values.

4 points

Question 11

1. What’s the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?

   		$6.50
   		$650.00
   		$1,000.00
   		$1,538.46

4 points

Question 12

1. Monica has decided that she wants to build enough retirement wealth that, if invested at 6 percent per year (APR compounded monthly), will provide her with $2,000 monthly income for 30 years. To date, she has saved nothing, but she still has 25 years until she retires. How much money does she need to contribute per month to reach her goal?

   		378.38
   		866.58
   		481.36
   		970.30

4 points

Question 13

1. If you start making $25 monthly contributions TODAY and continue them for 4 years, what’s their future value if APR is 6% with monthly compounding? What is the present value of this annuity?

   		$101.26, $99.26
   		$1,352.45, $1,064.51
   		$1,352.45, $1,069.83
   		$2,171.02, $1,516.03

4 points

Question 14

1. A loan is offered with monthly payments and a 6.5 percent APR. What’s the loan’s effective annual rate (EAR)?

   		5.69%
   		6.697%
   		7.28%
   		12.63%

4 points

Question 15

1. How much would be in your savings account in 7 years after depositing $100 today if the bank pays 5% interest per year?

   		$135.00
   		$140.71
   		$735.00
   		$814.20

4 points

Question 16

1. The practice generally known as double taxation is due to

   		shareholders’ dividends being taxed at both the federal and state levels.
   		corporate income being taxed at both the federal and state levels.
   		both A and B above.
   		corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends.

4 points

Question 17

1. How many years will it take $500 to grow to $750 with an annual interest rate of 6 percent?

   		6.03 years
   		6.96 years
   		12.00 years
   		15.00 years

4 points

Question 18

1. How are future values affected by changes in interest rates?

   		The lower the interest rate, the larger the future value will be.
   		The higher the interest rate, the larger the future value will be.
   		Future values are not affected by changes in interest rates.
   		One would need

4 points

Question 19

1. Given a 6 percent interest rate, compute the present value of deposits made in years 1, 2, 3, and 4 of $1,200, $1,400, $1,400, and $1,500.

   		$4,356.52
   		$4,741.68
   		$5,188.68
   		$5,506.00

4 points

Question 20

1. A $50,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

   		The annual payments would be larger if the interest rate were lower.
   		If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.
   		The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.
   		The last payment would have a higher proportion of interest than the first payment.

4 points

Question 21

1. What is the present value of a $200 payment made in 3 years when the discount rate is 8 percent?

   		$150.00
   		$158.77
   		$251.94
   		$515.42

4 points

Question 22

1. Which of the following is an example of aligning managers’ personal interests with those of the owners?

   		Allow the managers to have as many perks as they request.
   		Pay the managers high salaries.
   		Offer the managers an equity stake in the firm.
   		Trust the managers’ actions as they will always act in the owners’ best interest.

4 points

Question 23

1. You wish to buy a $5,000 dining room set. The furniture store offers you a 2 year loan with a 12 percent APR. What are the monthly payments?

   		$185.37
   		$208.33
   		$233.04
   		$235.37

4 points

Question 24

1. For corporations, maximizing the value of owner’s equity can also be stated as

   		maximizing retained earnings.
   		maximizing earnings per share.
   		maximizing net income.
   		maximizing the stock price.

4 points

Question 25

1. Which statement is correct about the forms of Businesses?

   		The profits of a C corp are not subjected to corporate income tax.
   		The profits of LLC are subjected to corporate income tax.
   		The profits of LLC are not subjected to personal income tax.
   		The profits of an S corp are not subjected to corporate income tax.   Click here to have a similar A+ quality paper done for you by one of our writers within the set deadline at a discounted