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FNCE10002 Principles of Finance Semester 1, 2019 Sample Mid Semester Exam 1
This sample exam and the mid semester exam are based on the material covered in weeks 1 – 4. The exam duration is 60 minutes with no reading time. Detailed suggested answers to this sample exam will be placed on the LMS in due course. On the mid semester exam, you will be required to enter your answers on a multiple choice answer sheet (MCAS). A sample of the MCAS is available via the Mid Semester Exam link. You will also be provided with adequate space for calculations, etc. in the exam booklet.
Questions 1 through 3 are based on the following information.
You have borrowed $20,000 from a bank for a five-year period. You will be making monthly payments on this loan and the interest rate on the loan is 12% per annum with interest compounded monthly.
- The monthly payment on this loan is closest to:
A. $200.00. B. $244.89. C. $444.89. D. $462.35.
- The principal balance repaid in the first month is closest to:
A. $200.00. B. $244.89. C. $444.89. D. $462.35.
- The effective annual interest rate on this loan is closest to:
A. 1.0% p.a. B. 12.0% p.a. C. 12.4% p.a. D. 12.7% p.a.
- LOL Ltd has just issued a perpetual (that is, non-maturing) financial security that is expected to pay an annual coupon of $120 next year. This coupon will then decline at a rate of 2% per annum forever. If the interest rate on this security is 8% p.a., its price today should be closest to:
A. $1,200. B. $1,500. C. $2,000. D. $6,000.
- Which of the following statement(s) for a coupon paying corporate bonds is (are) true?
I. For bonds selling at par the yield to maturity and coupon rate will be equal. II. For bonds selling at a premium the yield to maturity will be higher than the coupon rate. III. For bonds selling at a discount the yield to maturity will be lower than the coupon rate.
A. I only. B. I and II only. C. I and III only. D. I, II and III.
- Your friend has won first prize in the Tenth Annual Sumochef Competition and offered one of the following options. Assuming an interest rate of 10% p.a., which option should your friend choose? ( Assume end-of-the-year cash flows and round your final answers to the nearest dollar. )
A. $99,000 today. B. $10,000 per year for the next 50 years. C. $160,000 at the end of year 5. D. $5,000 next year growing at 5% p.a. forever.
- Starz Ltd’s dividends are expected to grow at a rate of 5% p.a. in the foreseeable future. Starz’s current dividend is $1.00 per share and the required return on stocks like Starz is 10% p.a. Based on this information, Starz Ltd’s share price today should be closest to:
A. $10.00. B. $10.50. C. $20.00. D. $21.00.
- A bond maturing in eight years with a face value of $10,000 is currently trading at $4,665. If the bond does not pay a coupon its yield to maturity should be closest to:
A. 8.0% p.a. B. 9.0% p.a. C. 10.0% p.a. D. 11.0% p.a.
- Taggart Ltd currently has a bank loan outstanding that requires it to make three annual payments at the end of the next three years of $1,000,000 each. The bank has offered to allow Taggart to skip making the next two payments and instead make one large payment at the end of the loan’s term in three years. If the interest rate on the loan is 6% p.a., compounded quarterly, the final payment that will make Taggart indifferent between the two payment options is closest to:
A. $2,666,283. B. $2,673,012. C. $3,183,600. D. $3,187,856.
- Ninety days ago, you purchased a 180-day Treasury bill with a face value of $200,000. At that time, the yield to maturity on the bill was 8.0% p.a. The current yield to maturity on the bill is 6.0% p.a. The price of the bill today is closest to:
A. $192,409. B. $194,252. C. $196,131.
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