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%