# This is Financial management assignment

June 12, 2016

Question
Question 1

1.

Smart Sammy tripled his money in just 3 years in the recent stock market boom. His average annualized return was:

a.

67%

b.

44%

c.

25%

d.

100%

Question 2

1.

One of your best friends, who is in 20% marginal tax bracket, is planning to buy a Condo selling for \$ 140,000. Your friend’s plan is to make a down pmt of 20% and finance the balance from a Bank in Worcester MA at a fixed rate of 4.99% over 30 years with monthly payments. He needs your help in figuring out his first year tax savings if he decides to buy this home.

a.

\$1,441

b.

\$5,551

c.

\$1,110

d.

\$1,118

Question 3

1.

Currently the IVY League Colleges cost about \$ 50,000 per year for the 4 year college education, while the WSU Costs only about \$ 15,000. . These costs are going up each year by about 4.5%. In 18 years time, the difference between the Ivy League and WSU would be approximately:

a.

\$ 35,000

b.

\$63,350

c.

\$940,000

d.

\$ 77,300

Question 4

1.

Net Future value (NFV) of the following Cash Flows (CF) is:

YR

0

1

2

3

4

CF

100

50

30

60

20

Discount Rate =

10%

a.

\$300

b.

\$ 335.00

c.

\$260

d.

\$235

Question 5

1.

Your best friend’s parents want to buy a home in the Worcester County, but they don’t know the exact amount of money that they can afford to borrow. They can afford monthly payments of \$ 1,800. A friendly bank in Worcester has indicated that they can borrow money at 6% fixed rate for 30 years with monthly payments. They can afford to borrow:

a.

\$ 24,777

b.

\$142,305

c.

\$300,225

d.

\$ 648,000

Question 6

1.

Car Leasing Problem

Car Price = \$22,500

Dn Payment = \$2,500

Lease Duration = 3 years

Leasing Rate = 2.99%

Residual Value of Car at the end of 3 years = \$12,5000

Approximate Monthly Payments for this Lease are:

a.

320.00

b.

715.00

c.

\$ 280

d.

\$250.00

Question 7

1.

Lucky Ed, 70, just won a Power Ball Lotto worth \$120 million. He has two options collect his winnings:

Option #1: Annuity Option: One Pmt per year. In all 20 pmts

Option # 2: Cash Option: Lotto Commission would use a Discount Rate of 10% to calculate this value.

Assume Ed to be 40% Marginal Tax bracket. On Your advice, Ed has decided to take the Cash Option.

Based on your calculation Joe would, under Cash Option, receive a Lump Sum of:

Note: The answers are rounded to Zero Decimal points.

\$34m

\$30m

\$72m

\$31m

Question 8

1.

All of the followings are the rights and privileges of a Common Stockholders EXCEPTING:

a.

Right to Interest Payments

b.

Voting Proxy Rights

c.

Pre-emptive Right

d.

Residual Right

e.

Right to Dividends

Question 9

1.

Fine prints on a Credit Card state that the all unpaid balances will be charged at an annual percentage rate (APR) of 24%. The effective annual rate (EAR) with monthly compounding is:

a.

26.8%

b.

21.7%

c.

27.1%

d.

24.0%

Question 10

1.

The financial instrument that promises to pay the same amount of money at the beginning of each month for a given no of months is:

a.

Annuity Due

b.

Perpetuity

c.

Ordinary Annuity

d.

Preferred Stock

Question 11

1.

You are offered an investment that will make you three payments of \$ 5,000 each. These payments would occur from now at the end of 4th, 5th, and 6th year respectively. If you can 11%, what is the most this investment is worth now?

a.

\$ 15,000

b.

\$12,219

c.

\$ 8,934.00

d.

\$10,968.00

Question 12

1.

Working Capital Management refers to a Firm’s Short Term Assets. All of the following assests are Short Term, RXCEPT:

a.

Cash

b.

Account Receivable

c.

Inventory

d.

Notes Payables

e.

Prepaid Expenses

Question 13

1.

Financial Management Goal of a Corporation is to:

a.

Maximize Stockholders’ Wealth

b.

Maximize Net Sales

c.

Maximize Market Share

d.

Maximize Profit

1.

This is a type of financial market where Securities are sold for the first time:

a.

Dealer Market

b.

Primary Market

c.

Auction Market

d.

Secondary Market

Question 15

1.

Supposing you are responsible for setting the policy on Effective Annual Rates (EAR) on all loans for a bank in Worcester MA, You have decided that all loans given to people with Credit Score between 500 and 600 should be charged an EAR of 18%. A customer with Credit Score of 540 wants to borrow \$200,000 to buy a Condo. The Truth in Lending Act of 1968 AKA Regulation Z requires that cost of borrowing must be quoted in Annual Percentage Rate (APR). According to your calculations, this APR rate is:

a.

16.72%

b.

15.95%

c.

16.56%

d.

18.00%

Question 16

1.

At a Discount Rate of 9.5%, a plot of land that promises to generate a cash flow of \$ 12,000 per year forever Is worth:

a.

\$ 179,325

b.

\$ 126,316

c.

\$120,850

d.

Its value cannot be calculated.

Question 17

1.

You would like to retire in 50 years as a millionaire. If you have \$10,000 today. What rate of return do you need to achieve your gaol?

9.65% per yr

198% per yr

1.98%

10% per yr

Question 18

1.

Supposing ,you just graduated from WSU and got a nice high paying job with a Finance Company. You are planning to buy a Lexus car that sells for \$55,000. Your plan is to accumulate 20% down payment for the Lexus Car by making monthly deposits of \$ 600 in an account that promises to earn at an annual rate of 12%. No of months it would take to meet this objectives is:

a.

17

b.

20

c.

18

d.

10

Question 19

1.

This is a type of Business which is run by a few active owners that have unlimited liabilities, but there are many more passive owners who have limited liabilities. This type of business is called:

a.

Limited Partnership

b.

Limited Liability Corporation (LLC)

c.

S Corporation

d.

General Partnership

Question 20

1.

CF Estimates for a Business Deal (Project) are given below:

DR=

12%

YR

CF

0

\$ (250.00)

1

\$110.00

2

\$95.00

3

\$80.00

4

\$70.00

NPV of this Project is:

a.

\$ 23

b.

\$ 105

c.

\$ 25

d.

\$ 275

Question 21

1.

Under term and conditions of a Credit Card Company, in fine print, it is mentioned that failure to pay bills in time would result in increase in APR from 15.99% to 34.99%. This means anybody not paying his/her bills in time will see his/her EAR to increase by:

a.

23.97%

b.

19.00%

c.

24.65%

d.

24.53%

Question 22

1.

The day Little Joey was born his smart Grand Parents opened an Investment Account that promised to pay 8% per year with a lump sum of \$10,000. In addition, they had been investing \$100 per month in the same account. Today Joey turned 18 and his Grand Parents liquidated this investment account and gave the total proceed to Joey for his college education.The amount of total proceeds is:

a.

\$84,900

b.

\$43,705

c.

\$90,014

d.

\$ 47,728

Question 23

1.

Joe & Moe, both 65, just retired and each received a check from their Retirement Plan. Joe & Moe both have been contributing \$ 5,000 each year in their retirement plans since the age of 25. Retirement portfolio of Joe and Moe has been exactly the same with one difference. Joe started contributing at the beginning of each year and Moe at the end of each both year. The average annualized returnsboth portfolios has been exactly the same, 5% py. Joe is retirement check is greater than Moe’sby:

a.

98,775

b.

\$0

c.

\$5,250

d.

\$30,200

Question 24

1.

In a typical Corporation, the chief of the Finance Department is generally known as the Chief Financial Officer (CFO). Under CFO there are two important positions. One of the positions is called “Controller”. The second position is Called:

a.

Tax Manager

b.

Credit Manager

c.

Treasurer

d.

Cash Manager

Question 25

1.

You are scheduled to receive \$13,000 in two years. When you receive it, you

will invest it @ 8% per year for next 6 years. At the end of 8 years you will have:

a.

\$ 21,320

b.

\$ 19,240

c.

\$ 24,062

d.

\$ 20,629

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