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FIN245 Final Revision Fall 2022

Q1. You’re prepared to make monthly payments of $2,000, beginning at the end of this month, into an account that pays 3 percent interest compounded monthly. How many   payments will you have made when your account balance reaches $150,000?

Q2. The Avocado Company had $350,000 in 2020 taxable income. Using the tax rates below, what is the average tax rate?

Q3. You want to buy a new iPad Pro for $15,000, and the finance office at the dealership has quoted you a 18 percent APR loan compounded monthly for 36 months to buy the new iPad Pro. What is the effective interest rate on this loan?

Q4. When you were born eighteen years ago, your parents set aside $100,000 to help fund your foreign university education. Today, that fund is valued at $1,500,000. What rate of interest is being earned on this account?

Q5. Lion Golf Corp. has 50,000 shares of common stock outstanding, and the market price for a share of stock at the end of 2020 was $30. The net income was $75,000. If the company’s        growth rate is 5 percent, what are the PEG ratio?

Q6. What is the present value of $1,000 per year, at a discount rate of 7 percent, if the first   payment is received 10 years from now and the last payment is received 30 years from now?

Q7. This morning, you borrowed $5,000,000 to buy a house. The mortgage rate is 3 percent. The loan is to be repaid in equal monthly payments over 30 years. The first payment is due  one month from today. What is the monthly payment?

Q8. Lucky Forever Co. issued 20-year bonds ten years ago at a coupon rate of 5 percent. The bonds make semiannual payments and the face value is $1,000. If the yield to maturity (YTM) on these bonds is 9.4 percent, what is the current bond price?

Q9. Green World Co. is growing quickly. Dividends are expected to grow at a 40 percent rate for the next three years, with the growth rate falling off to a constant 8 percent thereafter. If the required return is 10 percent and the company just paid a $1.20 dividend, what is the current share price?

Q10. You want to be a millionaire when you retire in 40 years. You can earn an 11 percent    annual return. How much more will you have to save each month if you wait 10 years to start saving versus if you start saving at the end of this month?

Q11. You are a financial analyst for the China Environmental Energy Company. The director of capital budgeting has asked you to analyze proposed capital investments, Projects P and Q. These two projects are mutually exclusive projects.    The cost of capital is 10 percent for both projects.    The project’s expected net cash flows are as follows:

Calculate Project P’s profitability index (PI).

Q12. A stock has an expected return of 15 percent, its beta is 2. 1, and the expected return on the market is 8 percent. What must the risk-free rate be?

Q13.

There are two stocks and three states of the economy:

Suppose you have $800,000 to invest and you want to create an investment portfolio P.    If you put $320,000 in Stock X and remainder in Stock Y, what will be the standard deviation on your portfolio P?

Formulas:

「 1 ]

PV = C 1 − (1+ r)t

r

「 (1+ r)t −1]

FV = C |                             |

L r 」