Finance 302 Exam 1 Prep

($3,038)

If you borrow $17,140 at an annual rate of interest of 5.7% for 7 years, what is the annual payment (prior to maturity) on a fully amortized loan?

principals, agents

In agency theory, the owners of the business are referred to as _____________, and the managers are referred to as ________________.

$351,542

Kim decides early in her career that she wishes to save aggressively for retirement. Kim chooses to put away $9,975 of earnings at the end of each year for twenty years. How much money will be in Kim's retirement account in twenty years if her investment accounts earns an annual rate of 5.6%?

not cash flow

Net income is _______________

$6,222

Samuel's Dad is looking to deposit a sum of money immediately into an accountcthat pays an annual interest rate of 8.00% so that his first-year college tuition costs are provided for. Currently, the average college tuition cost is $17,000 and is expected to increase by 1.00% per year (the average inflation rate). Samuel just turned 3 and is expected to start college when he turns 18. How much money will Samuel's Dad have to deposit into the account?

historical interest rates

Which of the below is NOT a major component of interest rates? A Inflation premium B Real rate C Default premium D Historical interest rates

limits liability

Which of the following is NOT an ADVANTAGE of a sole proprietorship?

insurance payments due at the start of the period

Which of the following is NOT an example of ordinary annuity cash flows?

B reducing principle at a faster pace increases the overall interest paid on a loan

Which of the statements below is FALSE? A Monthly interest on a loan is equal to the beginning balance times the periodic interest rate. B Reducing principal at a faster pace increases the overall interest paid on a loan. C The more frequent the payment, the lower the total interest expense over the life of the loan, even though the effective rate of the loan is higher. D Reducing principal at a faster pace reduces the overall interest paid on a loan.

D. accounting identity is: assets = liabilities + owners equity

Which of the statements below is TRUE? A Accounting Identity is: Assets ≡ Owners' Equity - Liabilities. B Accounting Identity is: Assets ≡ Liabilities - Owners' Equity. C Accounting Identity is: Liabilities ≡ Assets + Owners' Equity. D Accounting Identity is: Assets ≡ Liabilities + Owners' Equity.

D The frequency of bankruptcy for a high-tech up-start firm is higher than for a blue-chip firm, so we see higher borrowing rates for start-ups than for mature firms.

Which of the statements below is TRUE? A The frequency of bankruptcy for a high-tech up-start rm is lower than for a blue-chip firm, so we see lower borrowing rates for start-ups than for mature firms. B The frequency of bankruptcy for a high-tech up-start firm is higher than for a blue-chip firm, so we see lower borrowing rates for start-ups than for mature firms. C The frequency of bankruptcy for a high-tech up-start firm is lower than for a blue-chip firm, so we see higher borrowing rates for start-ups than for mature firms. D The frequency of bankruptcy for a high-tech up-start firm is higher than for a blue-chip firm, so we see higher borrowing rates for start-ups than for mature firms.

$54,071 so you should choose to pay the full price today

You are considering the purchase of an industrial printer for your business. The salesman states that you can purchase the printer today for $50,000 or pay nothing today and make monthly installment payments of $704 for 9 years. Your company's current financing rate is 8.00% annually. What is the present value of the monthly payment plan and which payment option should you choose?

corporation

A _______________ has limited liability, is a legal entity, and has the greatest potential to raise capital

move money from lenders to borrowers and back again

At its most basic level, the function of financial intermediaries is to ______________.

$6450

Balance Sheet of Accounts of Greek Society Inc. Account . Balance 12/31/16 Acc. dep. $3,060 Acc. pay. $2,750 Cash . $3,200 Common stock $6250 Inv. $4500 Long term debt $7100 Plant, prop, equip $14800 Retained earnings $4,840 Refer to the Balance Sheet Accounts of Greek Society Inc. The value of net working capital at the year-end is ________________.

Take the lump-sum payment now because the present value of the annuity is less that the lump-sum payment

Congratulations, you've just won the $2,500,000 state lottery! The lottery commission oers you the choice of $114,000 per year for 25 years or a one-time, lump-sum payment of $1,350,000 If your intensions are to save all of the lottery winnings (regardless of annual cash flow or lump-sum) for retirement in an account that earns 8.00% annually, which payment option should you choose?

1.00%

Elizabeth is seeking to expand her rare coin collection. Each year, rare coins increase in price at a three percent rate. She believes that if she invests her money for one year, she should be able to buy 26 coins for what 25 coins would cost today. What is her real interest rate or reward for waiting?

owner of the financial asset

Financial markets can be classified by which of the following? Type of asset traded Owner of the financial asset Maturity of the financial asset

23.5

Suppose you buy a home and borrow $127,000 using a 30 year mortgage with an annual interest rate of 6.30% (compounded monthly). You recall your FI 302 professor talking about how increasing your monthly payment can save you both time and money. You decided to pay 10% more each month than what the bank suggests your payment should be. Given this, in how many years will you pay o the loan?

$4417, 9.20%

The 17th National Bank of Tuscaloosa offers a 3-year line of credit in the amount of $48,000 The account carries a 8.90% APR with quarterly compounding. At the end of 1 year, how much interest have you paid and what is the banks effective annual rate?

Financial institution and markets

The organized financial intermediaries and the forums that promote the cycle of money is a good definition of which of the following main areas of finance?

there is a disutility from forgoing consumption

The premise of time value of money rests on which of the following?

primary

The sale of "new" securities, where the financial asset is being traded for the very first time, is said to take place in the ______________ market.

exactly $1000

What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%, and the cash flows of $50 last for 20 years?

interest-only loan

What type of loan makes interest payments throughout the life of the loan and then pays the principal and nal interest payment at the maturity date?

amortized loan

What type of loan requires both principal and interest payments as you go by making equal payments each period?

$514

You decide to start saving for retirement by depositing $2,000 into an account every year for the next 11 years. If the account earns 2.10% return annually, how much more will be in the account 11 years from now if you made the first deposit today as opposed to the end of the year?

a decease in the time to graduation

You parents are going to give you $10,000 as a gift upon graduation. Which of the following would cause the present value of this gift to rise?

Buy when you return, because you could earn more money investing the price of the car today.

You would like to buy a car but must complete a 2 year commitment to the Peace Corp before you can drive the new car. The current price of the car you want to buy is $22,000 and the dealer expects the price of a similar new car to be $27,500 in 2 years. If you can earn an annual interest rate of 12.00% on your money, should you buy the car now or wait until you return? Why? (Note that storage costs of the car are $0)

$120,000

You've had a successful career and wish to create an endowed annual scholarship in the amount $9,000 per year. University officials tell you they can earn an annual interest rate of 7.50% on endowed funds. How much money do you need to give today to endow this scholarship for as long as the university is in existence?

The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%

Your grandmother places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?

transfer of ownership

________________ is a major disadvantage of the corporate form of business