EXAM #1
Value of a retirement annuity Personal Finance Problem An insurance agent is trying to sell you an annuity, that will provide you with $6,800 at the end of each year for the next 20 years. If you don't purchase this annuity, you can invest your money and earn a return of 6%. What is the most you would pay for this annuity right now? Ignoring taxes, the most you would pay for this annuity is
$ 77995.46
Time Value Personal Finance Problem Misty needs to have $22,000 in 4 years to fulfill her goal of purchasing a small sailboat. She is willing to invest a lump sum today and leave the money untouched for 4 years until it grows to $22,000 but she wonders what sort of investment return she will need to earn to reach her goal. Use your calculator or spreadsheet to figure out the approximate annually compounded rate of return needed if she can invest $15,900 today. The annually compounded rate of return Misty needs to earn to reach her goal is %
8.46%
The future value of $100 received today and deposited in an account for four years paying semiannual interest of 6 percent is ________. A. $127 B. $450 C. $889 D. $134
A. $127
Which of the following is an example of agency cost? A. failure to make an investment that would make shareholders wealthier B. payment of income tax C. costs incurred for setting up an agency D. payment of interest
A. failure to make an investment that would make shareholders wealthier
The main idea behind the time value of money is that a dollar today is worth more than a dollar in the future because ________. A. investors can earn a return on money they have today and thereby have more money in the future B. the future is more uncertain than the present C. investors are impatient D. inflation erodes the value of money over time
A. investors can earn a return on money they have today and thereby have more money in the future
The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate. A. effective B. nominal C. discounted D. continuous
B. nominal
In the next planning period, a firm plans to change its policy of all cash sales and initiate a credit policy requiring payment within 30 days. The statements that will be directly affected immediately are the ________. A. cash budget and statement of retained earnings B. pro forma balance sheet and cash budget C. pro forma income statement and pro forma balance sheet D. pro forma income statement, balance sheet, and cash budget
B. pro forma balance sheet and cash budget
Pro forma financial statements are used for ________. A. auditing B. profit planning C. cash budgeting D. preparing financial statements
B. profit planning
The primary goal of the financial manager is to maximize; A. profits B. EPS C. shareholder wealth D. revenue
C. shareholder wealth
Which of the following provides savers with a secure place to invest funds and offer both individuals and companies loans to finance investments? A. investment banks B. securities exchanges C. mutual funds D. commercial banks
D. commercial banks
A market that establishes correct prices for the securities that firms sell and allocates funds to their most productive uses is called a(n) ________. A. future market B. weak form market - C. forex market D. efficient market
D. efficient market
The percent of sales method of developing a pro forma income statement forecasts sales and other line items as a ________. A. percentage of average sales over a period B. percentage of average total assets over a period C. percentage of projected total assets D. percentage of projected sales
D. percentage of projected sales
An annuity with an infinite life is called a(n) ________. A. deep discount B. primia C. option D. perpetuity
D. perpetuity
In cash budgeting, other cash receipts are cash receipts expected to result from sources other than sales. True False
True
