REVIEW MIDTERM

1. Which of the following are downside to having a corporation?

a. Double taxation
b. Forming a corporation costs more
c. Unlimited liabilities
d. More record keeping, operational processes and reporting.

2. The goal of decisions made by financial managers should primary focus on increasing
which one of the following?
a. Size of the firm
b. Growth rate of the firm
c. Value per share of outstanding stock
d. Market shares

3. The financing decision involves:

a. Using cash to acquire other firm
b. Distributing cash to shareholders
c. Using cash to acquire real assets
d. Raising cash

4. Because management’s goal may be different from shareholders’ objective, ______ are
said to exist:
a. Agency problem
b. Growth opportunities
c. Synergies
d. Contigent claims

5. What is the payment after two years if you invest $1,000 with an interest rate at 9% p.a.
today?
a. $1,180
b. $1,900
c. $1,090
d. $1,188

6. The process of being earned on previously-earned interest is termed as:

a. Net present value
b. Capital interest
 c. Compounding
d. Principal Interest

7. How long must one wait for an initial investment to triple in value if the investment earns
8% p.a.?
a. Over 15 years
b. Over 14 years
c. Over 22 years
d. More information is needed to answer the question

8. You want to retire 34 years from now with $1,000,000 in your savings. If you currently (i.e.,
today) having $5,000 in savings, what interest rate must you earn on that savings to hit
your goal?
a. 16.86%
b. 48.82%
c. 4.882%
d. 20.00%

9. What is the present value of the following payment stream, assuming that interst rate is
at 8% p.a.: $1,000 at year 1, $2,000 at year 2, and $3,000 at the year 4?
a. $5,144.03
b. $4,845.69
c. $5,520.00
d. $5,022.11

10. You will receive an inheritance of $500,000 in 20 years on your 40th today. What is the
value of the inheritance today if the discount rate is 10%?
a. $74.321.81
b. $500,000
c. $50,000
d. $3,363,749

11. The following interest rates are being offered by competing banks, which one is the least
attractive?

Bank Rate Compounding

ANZ 8.19% p.a. Annually
VCB 8.14% p.a. Semi-annually
 HDB 8.12% p.a. Quarterly
TCB 8.08% p.a. Monthly
a. ANZ
b. VCB
c. HDB
d. TCB

12. How much must be invested today in order to generate a 4-year annuity of $45,000 per
year, with the first payment 1 year from today, at an interest rate of 5.5% p.a.?
a. $55,747.11
b. $222,988.44
c. $250,000.00
d. $157,731.76

13. Five year from now will receive cash flows of $75 per year. These cash flows will continue
forever. If the interest rate is 6% p.a., what is the present value of these cash flow?
a. $799.68
b. $894.22
c. $934.07
d. $990.12

14. You plan to make deposits of $500, $200 and $400 respectively on the last day of each
year for the next three years. If the account earns 6% p.a., how much can you withdraw
after 5 years from now?
a. $1,630.52
b. $1,173.80
c. $1,244.23
d. $1,318.88
e. $1,269.44

15. How much can be accumulated for retirement if $2,000 is deposited annually, beginning
one year from today, and the account earns 9% p.a. for 40 years?
a. $87,200.00
b. $675,764.89
c. $736,583.73
d. $802,876.27
16. Five year ago, Watson made an investment of 5,000 into an account. Today her account
has grown to have a balance of $6,583.31. Assume that her account offered quarterly
compounding of interest, the interest rate (APR) on this account is was closest to:
a. 5.00% p.a.
b. 5.25% p.a.
c. 5.40% p.a.
d. 5.54% p.a.
e. None of the above

17. John wants to establish a trust fund to give his heirs $100,000 a year forever. The fund is
expected to earn a 5.75% p.a. rate of return. How much money he deposit today to
establisth this trust?
a. $1,700,000
b. $1,716,067
c. $1,739,130
d. $1,800,000

18. Starting from today, Simon will deposit $1,000 into a bank account at the beginning of
each of the next 10 years to save for his vacation to Paris. If the interest rate is 5.625%
p.a., how much will he have in ten year to spend on his vacation?
a. $12,259.63
b. $12,950.96
c. $13,679.45
d. $14,495.48

19. Peter wants to purchase a new house that costs 187,500. He plans to pay a down payment
of $37,500. The National Bank will lend him the remainder for 30 years at an interest rate
of 10% p.a. compounded monthly. The first payment is due one month from today. What
is the amount of his monthly payment?
a. $1,316.36
b. $1,645.45
c. $5,675.49
d. $15,922.49

20. Twelves years ago Dagny Taggart took out a 30-year $400,000 mortage loan to finance for
her new home. The mortage has an interest rate of 5.4% p.a. and requires monthly
payments. How much the loan still owes after 12 years?
a. $309,888.96
 b. $129,216.79
c. $237,662.53
d. $209,540.74

21. You can afford to pay $125 a month on a car loan. You are willing to make monthly
payment for 4 years at 7.9%. The most expensive car that you should be looking at is
______. The amount of interest that you will pay during the first month of your mortage
is ______.
a. $4,849.53; $31.93
b. $5.130.10; $33.77
c. $5,150,00; $125.00
d. $5,163.75; $33.99

22. Nine years ago, Ann entered into a $34,000 mortage loan of 20-year and at a fixed rate of
12% p.a. (compounding monthly) with HSBC. Ann decides to refinance her loan with ANZ
who offers 10% p.a. (compounding montly) for mortage loan. There is no cost associated
with this refinancing. What is her monthly savings from this refinancing?
a. $17.46
b. $30.12
c. $32.31
d. Not be able to determine

23. The current yield measures the bond’s total rate of return.
a. True
b. False

24. Zero-coupon are issued at price below face value, and the investor’s return comes from
the difference between the purchase price and the payment of face value at maturity.
a. True
b. False

25. How much should you pay for a $1,000 bond with 10% coupon, annual payments, and 5
year to maturity if the interest rate is 12%
a. $927.90
b. $981.40
c. $1,000.00
d. $1,075.82
26. D’ bonds have a face value of $1,000 and a current market price of $1,010. The bonds
have a 7% coupon rate. What is the current yield on these bonds?
a. 6.93%
b. 6.97%
c. 7.00%
d. 7.03%

27. An investor purchases a three-year bond with a 7% coupon at the yield to maturity (YTM)
of 11% and sells the bond one year later at the yield to maturity (YTM) of 10%. What is
the one-year rate of return on this bond?
a. 8.22%
b. 10.0%
c. 12.82%
d. 11.00%

28. Baliaz’s semi-coupon bonds have a current market price of $1,083.72 and three years until
maturiy. If the YTM is 6% p.a., what is the coupon rate for these semi-coupon bonds?
a. 10.98%
b. 6.15%
c. 9.00%
d. 8.00%

29. Hochiminh Stock Exchange (HSX) and Over-the-counter (OTC) markets:

a. Are both considered as primary markets
b. Are both considered as secondary markets
c. HSX as primary market, and OTC as secondary market
d. OTC as primary market, and HSX as secondary market

30. You forecast next year’s dividend of HTL is to be $5.50, the constant-growth rate is 4%,
and the discount rate is 16%. What is the current stock price of HTL?
a. $45.83
b. $34.38
c. $41.67
d. $47.66

31. ABC common stock is expected to have extraodinariy growth of 20% per year for 2 years,
at which time the growth rate will settle into a constant 6%. If the discount rate is 15% and
the most recent dividend was $2.5, what should be the approximate current share price?
 a. $31.16
b. $33.23
c. $37.42
d. $47.77

32. What is the expected constant growth rate of dividends for a stock with current price of
$100, expected dividend payment of $10 per share, and a required return of 20%?
a. 6.00%
b. 6.25%
c. 8.00%
d. 10.00%

33. A payout ratio of 35% for a company indicates that:

a. 35% of dividends are plowed back for growth.
b. 65% of dividends are plowed back for growth.
c. 65% of earnings are paid out as dividends.
d. 35% of earnings are paid out as dividends.

34. How much should you pay for a share of W&B’s stock that offers a constant-growth rate
of 10%, requires a 16% rate of return, and is expected to sel the stock for $50 one year
from now?
a. $42.00
b. $45.00
c. $45.45
d. $47.00