[SOLVED] FIN 5203 Financial Management

FIN 5203 – Financial Management

MIDTERM PRACTICE TEST 1

1.   You are analyzing aproject based on its timeline and the expected cash flows. The project, which is expected to last 10 years, will produce an NPV of $275,000 with the discount rate of 12.20% pa. The expected cash flows in the first five years are $120,000 per year, and they are $150,000 in the second five years (i.e., Years 6 to 10). Based on this information, what is the initial investment of this project?

a.   $512,170 b.   $458,030 c.   $470,050 d.   $492,880 e.   $439,670

2.   Imagine a project for which you need make an initial investment of $250,000 today. The project’s first year cash inflow is $40,000 and the annual cash flows will grow 2% per year. If the project has the life of eight years, at what discount rate will you be indifferent between accepting and rejecting the project?

a.   5.84% b.   6.22% c.    6.70% d.   7.09% e.   7.45%

3.   You want to buy your dream car for $100,000 today. You have only $35,000 to pay for the car, so you are looking for a loan to finance the rest of the car purchase. Bank Y has the following loan offer for you: a four-year loan with monthly payments at the end of each month, and an APR of 9.08%. Based on this information, what are the monthly payments of this loan?

a.   $1,673 b.   $1,649 c.   $1,620 d.   $1,601 e.   $1,587

4.   Imagine a loan that has quarterly payments for the next three years. If the loan amount is $230,000 and the APR is 6.80%, what will be the quarterly payments?

a.   $7,105   b.   $21,350 c.   $7,280   d.   $21,875

5.   You are a senior analyst of a  mutual fund, and you are assigned to write a report on a stock. The stock is expected to pay a dividend of $3.00 per share next year, and you believe that the dividends will grow at the rate of 5% per year. If the annual required rate of return is 9.83%, how much do you expect to sell this stock at the end of year 2?

a.   $68.48 b.   $73.55 c.   $71.90 d.   $65.77 e.   $75.12

6.   You are interested in buying a real estate in St. Louis. The property costs $700,000 today. If you buy this property, you will rent it immediately and earn $3,000 per month (paid at the beginning of each month) for the next six years. If you plan to sell this property for $1M at the end of year 6 and your (annual) discount rate is 9.60%, what is the NPV of this project?

a.   $28,455  b.   $45,910  c.   $39,587  d.   $17,260  e.   -$10,980

7.   You  bought a 30-year semi annual coupon bond for $944 today. The face value of the bond is $1,000, and its coupon rate is 8% pa. Under these circumstances, what is the yield to maturity (YTM) of this bond?

a.   7.44% b.   7.76% c.   8.00% d.   8.28% e.   8.52%

8.   You bought a 20-year annual coupon bond three years ago. The bond has a coupon rate of 3.8%, face value of $1,000, and its YTM was 4.9%. Today (after receiving the third coupon), you sold the bond when the YTM was 4.5%. If you reinvested the coupons at 4% pa, what is your holding period return (HPR)?

a.   18.95% b.   20.30% c.    16.54% d.   17.70% e.   22.18%