Florida International University: Intermediate Finance

FIN 3414 (Intermediate Financial Management) Sample TEST  At anytime during the test, you can’t have anything other than your test, pencil, eraser, calculator and formula sheet on your desk. 3. ABSOLUTELY NO QUESTIONS/TALKING DURING EXAMINATION 4. Don’t forget to hand in your Formula Sheet. 5. Read, write your name and sign below. , I solemnly declare that I will not cheat or help others in cheat in the examination SIGNATURE PART I There are 15 questions in the first part, answer all of them. 1. The sum of an infinite geometric series ar, ar2, ar3, ar4, ……up to ? is a. a(1 – rn) for r ? 1 1 – r b. a(1 – rn+1) for r ? 1 1 – r c. a for r < 1 1– r d. ar for r < 1 1 – r e. None of the above 2. Consider the following series S = 10 + 10 + ………… 10 (1. 06) (1. 06)2 (1. 06)100

The sum of this series is a. 10 { 1 – ( 1/ 1. 06)100 } 1. 06 b. 10 { 1 – ( 1/ 1. 06)100 } (1. 06)100 0. 6 (10)100 c. 10 { 1 – ( 1/ 1. 06)100 } 0. 06 d. 10 { 1 – ( 1/ 1. 06)101 } 0. 06 e. 10 { 1 – ( 1/ 1. 06)101 } (1. 06) 0. 06 3. What is the future value of $10. 30 (deposited a year from now) at the end of 20 years, assuming the simple rate of interest is 0. 5 percent? (Answer correct within 2 cents) a. $ 11. 28 b. $ 11. 33 c. $ 21. 12 d. $1,091. 80 e. None of the above 4. In how many years an amount will double if the simple rate of interest is 1 percent? Answer correct within 2) a. 10 years b. Never c. 1000 years d. 100 years e. 139 years 5. What is the future value of $ 50 in 20 years if the rates of interest are 12 percent for the first six years, 11 percent for next 5 years and 10 percent for the remaining period? (Answer correct within one dollar) a. $ 336. 37 b. $ 406. 23 c. $ 392. 13 d. $ 413. 91 e. None of the above 6. You will receive $160 in the beginning of year 89. What is its present value at the beginning of 87 if the rate of interest is 13 percent? Answer correct within 50 cents) a. $ 141. 59 b. $ 110. 89 c. $ 125. 30 d. $ 153. 91 e. None of the above 7. In how many years $ 100. 69 will become $ 382. 42 if the rate of interest is 6. 9 percent (Answer correct within 0. 5) a. 21 years b. 20 years c. 14. 6 years d. 15. 6 years e. None of the above 8. Suppose you deposit $385. 54 at the beginning of each year for 10 years.

Find the future value of these deposits at the end of year 11 if the rate of interest is 10 percent compounded annually (Correct within five dollars) a. $6145 b. $6010 c. $6759 d. $7435 e. None of the above 9. You deposited $100 three years ago in the First National Bank. Today the balance in your account is $140. If First National Bank offers quarterly compounding, compute: (Assume 360 days in a year) (1) the annual nominal rate of interest; (2) the annual effective rate of interest.

Answer in the order of 1, 2 a. 11, 12 b. 12. 6, 13. 2 c. 11. 37, 11. 86 d. 11. 68, 11. 99 e. None of the above 10. ABC Corporation expects to earn $200,000 at the end of the year and projects a growth in earnings of 5 percent per year. If k is 10 percent, what is the present value of the earnings if it expects the growth forever a. $200,000( 0. 10 – 0. 05)-1 b. $200,000( 0. 05)-1 c. $4,000,000 d. All of the above e. None of the above 11. You will deposit $ 20 per month beginning of each month beginning today in an account that pays a monthly rate of interest of 8. 21 percent. How long will it take for your account to have $980? (Correct within 0. 3) a. 20 months b. 19 months c. 21 months d. 18 months e. None of the above 12. Mr. I. M. Smart started depositing $ A in an account that paid 12 percent rate of interest per year. After 21 annual deposits his account had $23864. 20. The present value of the annuity of $A is (Correct within 5 dollars) a. $2474 b. $1193. 21 c. PV of this annuity cannot be obtained because the value of $A is not given d. $2209 e. None of the above 13. Mr. & Mrs. Debt deposited $1000, $2000 and $2000 at the beginning of years 1, 2 and 3 .

The rates of interest during the years were 0. 12, 0. 15 and 0. 20. Obtain the present value of these deposits if the interest is compounded monthly? (Correct within $ 2) a. $6000 b. $6854 c. $5854 d. $6890 e. None of the above 14. If equal withdrawals of $20 at the end of each day with the initial investment of $200 are made, the number of days required to exhaust the amount, if the rate of interest is 10 percent per day, will be (assume 365 days in a year) a. The amount will never be exhausted . 7. 275 c. Cannot be solved because the calculator gives an error message d. Looks like the answer will be within 8 to 10 days e. None of the above 15. Mr. John P. L. K. Prabhakara Rao deposited $100 in an account that pays 20 percent rate of interest- compounded monthly. He intends to keep the account for 20 years. The effective rate of interest his account is earning is (answer correct within 0. 02) a. 22. 14 percent b. 20. 06 percent c. 21. 94 percent d. Only a person with this kind of name will keep the account for 20 years e. None of the above

PART II There are two questions in this part, answer all of them. 1. You need to set up a college fund at birth for your child that will pay $60,000 at age 18. k=12%. (a) How much must you deposit at the end of each year with annual compounding (b) How much must you deposit at the end of each month with monthly compounding (c) What will be the payments if they are at the beginning of the year (18 payments)? 2. Assume today is Oct, 4th 2012 and you are planning to deposit $100 every January 1st for five years. Assuming the rate of interest is 12% compounded monthly, a. What is the present value of the deposits today?