Baruch College, The City University of New York Department of Economics and Finance Sample and Practice Exam Questions Finance 3000

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1 Baruch College, The City University of New York Department of Economics and Finance Sample and Practice Exam Questions Finance 3000 Instructions Answer each of these questions on the Scantron sheet. Choose only one answer. If more than one answer is correct, choose the single one among them that is best. You may write on this exam as much as you want. Only the Scantron sheet will be graded. Each question counts equally. Please write your name legibly on this exam and the Scantron sheet. Hand both of them in at the end of the exam, along with your equation/note sheet. Good luck! Name (Please print) Roster No. Identification In these questions, you will identify your instructor and the version of your exam. These answers will be recorded on your Scantron sheet, but will not count as part of your exam score. Yhey are needed to insure that your exam is scored correctly. 1. Please mark the name of your instructor. a) Alan b). Herron c) Izhakian d) Kim e) None of these 2. Please mark the name of your instructor. a) Liu b) Onochie c) Rana d) Shechter e) None of these 3. Please mark the name of your instructor. a) Staneva b)vaghefi c)wu d) Yao e) None of these 4. Please mark the version of your exam. The version number is printed at the bottom of this page. a) 1 b) 2 c) 3 d) 4 e) 5 Version 1 Page 1

2 5. A year ago, an investor purchased 500 shares of Nevada Casinos, Inc. stock at a price of $30.00/share. The firm has just paid its annual dividend of $0.50. Now the share is priced at $20.75 per share in the market. What is his holding period return on the stock? a) 30.83% b) 29.17% c) 0.42% d) 70.83% e) 32.50% 6. One year ago you purchased a zero coupon bond and paid $725 for it. It now has 5 years remaining to maturity, and its yield to maturity is 8%. Its face value is $1,000. Find the change in dollar value of the bond in this period. Use semi-annual compounding. a) $ b) $ c) $ d) $ e) $ What is the present value of an annuity due of $1,000 per year for 10 years if the interest rate is 13% per year? a) $20,814 b) $6,132 c) $18,420 d) $5,426 e) $6, A person who is now 40 years old is planning for his retirement. He hopes to have a total of $690,000 available when he retires in 25 years. Based on the current yield curve, he expects to earn an average rate of 9% per year. He will make the first deposit to his retirement savings account exactly one year from today. How much must he save each year to reach his retirement savings goal in 25 years? a) $7,474 b) $8,146 c) $27,600 d) $84.70 e) $8,879 Version 1 Page 2

3 9. Amy's Home Crafts stock currently sells in the market for $8.00/share. It just paid a dividend of $0.30/share, and investors expect that the dividend will grow at a constant rate of 4% per year in the future. What rate of return do investors require on this stock? a) 2.90% b) 7.75% c) 7.90% d) 3.90% e) 7.61% 10. A zero coupon bond will mature in 10 years and pay its face value of $1,000. Its current market value is $620. What is its implicit yield to maturity based on semi-annual compounding? a) 38.00% b) 4.84% c) 61.29% d) 3.80% e) 4.896% 11. ABC Tutoring Consultants has some bonds outstanding, currently with 10 years remaining to maturity. The coupon rate is 10%, and the interest is paid annually. The face value of the bonds is $10,000. What is the value of one bond if the yield to maturity is 12%? a) $5, b) $3, c) $5, d) $8, e) $3, What is the present value of regular annuity of $7,000 per year for 25 years if the interest rate is 10% per year? a) $57,763 b) $69,893 c) $688,429 d) $63,539 e) $7,773 Version 1 Page 3

4 13. ABC Tutoring Consultants stock does not now pay dividends. Investors expect that it will begin paying a dividend of $2.00/share in exactly 5 years at time 5. That is, they forecast that D 5 will be $2.00/share. Investors expect that the dividend will then remain at that level of $2.00/share forever after that. They require a return of 18.00% on this stock. What is the value of this stock today based on the discounted dividend model? a) $4.86 b) $9.42 c) $11.11 d) $6.76 e) $ The present value of regular annuity of $3,000 per year is $13, The annual interest rate is 17.00% per year. How many payments must there be? a) 7 payments b) 11 payments c) 10 payments d) 8 payments e) 9 payments 15. You are offered an investment that will pay you a perpetuity of $1,000 per year forever. Its price is $39,600. What annual rate of return (discount rate) is implied in this value? a) 0.00% b) 2.53% c) 3.73% d) 0.05% e) 3.88% 16. What is the EAR of 10% compounded semi-annually? a) % b) % c) % d) % e) % Version 1 Page 4

5 17. How many years will it take for the amount of $31,000 to grow to $129,495 at an annual rate of 10.00%? a) years b) years c) years d) years e) years 18. Find the future value of $18,900 that will be invested at an annual rate of 11% for 25 years. a) $18, b) $256, c) $1, d) $1, e) $1, A life insurance company is selling a perpetuity contract that will pay $900 per month. The contract sells for $89,000. What is the APR of this investment? a) 12.83% b) 1.01% c) 1.13% d) 2.03% e) 12.13% 20. A year ago, an investor purchased 1000 shares of Romance Novels, Inc. preferred stock at a price of $22.00/share. The firm has just paid its annual dividend of $4.80. Now the share is priced at $20.90 in the market. What is the dividend yield of the stock based on its current price? a) 17.97% b) 22.97% c) 5.00% d) 21.82% e) 27.97% Version 1 Page 5

6 21. Applebee sold an issue of 30-year, $1000-par bond, with a coupon rate of 8.80% and semi-annual payment. The bond was sold at par. Now it is 5 years later and the current market rate of interest is 8.00%. What is the current market price of the bond? Round off to the nearest $1. a) $1,090 b) $1086 c) $920 d) $ Find the future value of $2,200 today that will be invested for 15 years. The discount rate is 6% per year compounded monthly. a) $2, b) $ c) $5, d) $5, e) $5, You saving up to buy a car. You plan on making your first savings deposit one year from today, and then making deposits for the following 3 years. These are the amounts you plan to save at the end of each year: Year Projected Savings Amount 1 $6,000 2 $6,000 3 $7,000 4 $7,000 You expect to earn an annual rate of 6% per year throughout. What amount will you have available at the end, at time 4, when you will buy the car? a) $21,308 b) $28,308 c) $7,420 d) $26,000 e) $27,560 Version 1 Page 6

7 24. Ajax Inc. just paid a dividend, D 0, of $2.20/share on its common stock. Investors expect that its dividend will grow at a constant rate of 4% per year, and they require a return of 15% on this stock. What is the value of this stock based on the discounted dividend model? a) $15.25 b) $20.80 c) $14.67 d) $20.00 e) $2.12 Version 1 Page 7

8 Answer Key 5. b 6. b 7. b 8. b 9. c 10. b 11. d 12. d 13. e 14. c 15. b 16. e 17. d 18. b 19. e 20. b 21. b 22. e 23. b 24. b Version 1 Page 8