Reference no: EM13381218

1. Maria just put $500 into a bank account that has a stated interest rate of 6.6%. If the account pays simple interest and she makes no additional contribution or withdrawals, how much money will she have in her bank account after five years?
$620
$635
$625
$665
$645

2. If Mari's bank account earns compound interest instead, how much money will be in her account after five years?
$650.39
$656.58
$662.82
$688.27
$638.14

3. Now assume the bank account earns compound interest, but the interest is compounded quarterly. That means interest is compounded four times a year. Assuming 6.6% nominal interest, compounded quarterly, how much money will be in Maria's account after five years?
$693.61
$666.82
$633.83
$646.31
$671.96

4. In 1626, Peter purchased an Island from a local native america tribe. Historias estimate the proce he paid for the island as about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that the Island would only sold for $24, but you need to consider the future value of that price in more current times. If the $24 purchase price cound have been invested at a 4.7% interest rate, what is its value as of 2006 (380 years later)?
$911,906,434
$5,574,326,112
$3,883,679,051
$440,962,453
$306,479,009

5. You have the opportunity to invest in several annuties. Which of the following 10-year annities has the greatest present value?A ssume all the annuties have the same interest rate.
An annuity that pays $1000 at the beginning of each year
An annuity that pays $500 at the beginning of every six months
An annuity that pays $500 at the end of every six months
An annunity that pays $1000 at the end of each year

6. You just won the lottery, The jackpot is $10 million, paid in 20 equal , annual payments starting today. In present-value terms, how much did you really win? Use an annual interest rate of 6.8%
$5,992,862.37
$6,079,058.25
$5,746,218.89
$5,380,354.76
$5,908,695.75

7. Bob is buying his first house. He is putting a $20,000 down payment on the house, but has to take out a mortgage for the remaining $170,000 of the purchase price. Bob's bank has offered him a standard 30-year mortgage with a 5.8% nominal interest rate. What would Bon monthly mortgage payment be?
$923.01
$997.48
$912.60
$944.02
$933.49

8. Bob is considering a 15-year mortgage because friends have told him that a 30-year mortgage is too long and he'll lose a lot of money to interest. If Bon can get a 15-year, $170,000 loan at a nominal interest rateof $5.8%, how much larger must his monthly payment be ?
$430.21
$427.05
$417.06
$418.77
$428.64

9. Naturally, Bob doesn't like the prospect of paying more money each month, but if he does take a 15-year mortgage, he will make a fewer payments and will pay a lot less in interest. How much more interest would Bob pays if he took a 30-year mortgage insteadof a 15- year.

$90,873.01
$106,429.63
$104,167.36
$93,054.65
$86,551.98

10. Luisa just bought a 10-year ordinary annuity that promises to pay $1,500 at the end of each of the 10 years. If the appropiate interest rate for this annuity is 8.6%, what is the present value of the annuity?
$9,798.32
$9,842.02
$9,886.03
$9,974.95
$9,930.34

11. Luisa has the option of extending her annuity another 10 years. If she pays more money today, she can continue to receive $1,500 per year for another 10 years. How much more should she be willing to pay to extend her annuity?
$4,473.83
$4,598.39
$4,662.10
$4,293.91
$4,412.95

12. How much this annuity be worth if it paid $1,500 at the end of each year forever?
$18,750.00
$17,441.86
$18,518.52
$18,072.29
$17,857.14

13. An investment is expected to pay the following annual cash flows
0 1 2 3 4 5
$600 $600 $800 $1,200 $1,500

If an investor thinks the appropiate interst rate for this ivnestment is 11.3%, what is the net present value (NPV) of this cash flow stream?
$3,383.14
$3,302.95
$3,508.97
$3,466.27
$3,263.90

14. Suppose you are informed that the price of this investmetn is actually $3,350. What is the expected rate of return on this investment?
14.80%
9.94%
12.51%
10.43%
13.06%

15. Jose has oopened a new investment account and is starting to save for retirement. At the end of every year, he will deposit $5,000 into the account. The expected return on the account is 8.6% per year. Julian wants to retire when he has $1 million in the account. How long will it take to reach his financial goal?
33.69 years
35.17 years
36.24 years
35.70 years
34.66 years

16. Julian friends Wilson opened a retirement investmet account at the same time as Julian, Wilson plans to contribute only $4,000 at the end of each yar to his account, but he also wants to reture at the same time as Julian and have a $1 million on his account. What expectee rate of return must wilson's accoutn earn in order for his to happen?

8.93%
10.22%
9.15%
9.58%
10.01%
17. You are considering going to graduate business school in three years. Current total cost of graduate school are estimated to be $32,000 per yar, but those costs are expected to grow each year at the rate of inflation (3.7% per year). You intend to enter a two-year program. Your first tuition bill is due at the endo of three years (for the first year of school) and your second tuition bill is due at th end of four years (for the second year of schoo)> How much are total costs expected to be in three and four years, respectively?
First year's tuition:

$36,891.91 $35,273.69 $35,273.69 $35,069.21

Second year's tuition:

$36,156.32 $37,291.70 $36,296.84 $36,016.28 $37,005.39

18. The money in the investment account for your education earns an expected return of 10% per year. How much money needs to be in your account three years from today (when you pay your first tuition bill)? Assume that your make no additional contributions to your account once you pay your first tuition bill?

$69,559.60
$68,168.48
$67,709.34
$69,326.31
$68,398.90

19. Your account has only $41,000 right now, which will not be enough to pay all your tuition costs. You have the opportunity to add money to your account at the end of the next three years. If your acount continues to earn 10% per year and you will make three equal payments, how much money should you contribute in each of these payments?
$3,969.29
$4,177.61
$4,457.80
$4,108.00
$4,598.93

20. What is the porfolio's expected return?
15.20%
16.25%
14.15%
13.10%
15.55%

21. Suppose Stock X and Y are perfectly, positively correlated (r=1). What is the portfolio's standard deviation returns?
0%
20%
20%
70%
35%

22. If you added ramdonly selected stocks to the porfolio, the portfolio'standard deviation would Stay the same increase gradually decrease gradually If a portfolio has no firm-specific risk reamining, which of the following is the best estimate of the standard deviation returns?
0%
20%
50%
70%
35%

23. The tradeoff between risk and return is a cornestone concept in finance. If a security offers a higher expected return, it must have higher risk. Look at the two stocks described in this problem. They have the same risj, but one stock has a highter expected return. Does this example contradict the tradeoff between risk and return?
Yes
No

24. Conrad hols a $20,000 porfolio that consists of four stocks. His investmetn in each stock, as well as each stock's beta is shown below:

25. If all the stocks in the porfolio were equallu weighted, which of these stocks would have the least amount of stand-alone risk?
AA
BI
CC
DE

26. If all the stocks in Conrad's porfolio were equally weighted, which of these stocks would contribute the least risk to the porfolio?
AA
BI
CC
DE

27. The risk-free rate is 5% and the market risk premium is 6%. What is the portfolio's beta and required return?
Conrad's portfolio
Beta
0.83
1.18
1.64
1.08
1.52
Rquired Return
12.62%
11.66%
12.20%
11.48%
13.16%

28. Suppose an aanlyst believes that the expected return on the porfolio is actually 14.80%. Does this analyst think the portfolio is undervalue, overvalued, or fairly valued?
Undervalued
Overvalued
Fairly Valued

29. The current risk-free rate of interest is 6%, and investors require a risk premium of 7% holding the market porfolio. An analyst believe that expected inflation will fall by 2 % points, but that will have not effect on the market risk premium. Use the graph below to plot the current Secuity Market Line (SML) and the new SML based upon the analyst's expectation about inflation.

30. A financial planner is examining the portfolios held by seveal of her clients. The portfolios are described below. Identify which portfolio is likely to have the smallest standard deviation.
A portfolio consisting of about 3 randonly selected stocks
A portfolio consising of about 30 technology stocks
A portfolio containing only Microsoft stock
A portfolio consisting of about 30 randomly selected stocks
A portfolio containing Microsoft, Apple Computer, and Google
31. Suppose the market risk premium is currently 6%. If investors were to become more risk-averse, the market risk premium might increase to 85. If investors became more risk-averse, wthat effect would you expect this to have on the prices of most financial assets?
Price would be unaffacted
Prices would incrase
Prices would decrease

32. Maria's portfolio, which has a bet ao 0.94, consists of three mutual funds: an international fund, a utility fund, and a technology fund. The international fund has a beta of 1.5 and makes up 20% of the portfolio. The utility funds has a beta of 0.5, and the technology fund has a beta of 1.3. If the portfoli's beta equlas 0.94, how much of Mari'as porfolio is invested in the technology fund?
35%
45%
25%
65%
30%

33. Juvy portfolio is invested equally in five stocks ( each stock weight of 0.20) and has a required return of 9.4%. The risk-fre rateof 5% and the market risk premium is 4%. What is the porfolio's beta assuming that Juvy porfolio in on the SML?
0.950
1.550
1.250
1.100
1.0

34. The last stock added to this portfolio is Victoc Store, which has a beta of 0.70. What was the portfolio's beta before Lauren's stock was added? (remember that it was a four sock portfolio before the last stock was added)
1.225
1.025
1.300
1.250
1.200