Finance 450 Exam 1

The variables in a future value of a lump sum problem include all of the following:

- Future Value - Payments - Time period - Interest rate

The variables in a present value of an annuity problem include all of the following

- Present Value - Payments - Interest Rate - Time Period

The variable that you are solving for in a future value of a lump sum problem is:

Future Value

A common error made when solving a future value of an annuity problem is:

Multiplying the annual deposit and the number of years before calculating the problem.

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase?

To compute the initial loan amount, you must use a monthly interest rate.

Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value?

4 percent interest, compounded annually

Which one of the following statements concerning the balance sheet is correct?

Assets are listed in descending order of liquidity.

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?

Common-size income statement

How would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)?

Decrease the present value.

Which loan type requires calls for the borrower to pay interest each period and to repay the entire principal at some point in the future?

Interest Only

Which ratio was primarily designed to monitor firms with negative earnings?

Price-sales ratio

Which loan type requires the borrower to repay a single lump sum payment at some time in the future with interest?

Pure Discount

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

Quick ratio

Suppose a business takes out a $7,000, five-year loan at 6 percent that will be paid annually with a single, fixed payment each period. How much will be the annual payment?

Total Amount = C × [(1 − 1/(1 + r)t)/r] $7,000 = C × [(1 - 1/(1 + .06)5)/.06] $7,000 = C × [(1 - 1/1.3382)/.06] $7,000 = C × [.2527/.06] C = $7,000 / 4.2121 C = $1,661.88

The variables in a future value of a lump sum problem include all of the following, except:

Volatility

The goal of financial management is to increase the:

current market value per share.

pure discount loan

simplest form of loan; the borrower receives money today and repays a single lump sum at some time in the future