50 QS.

The interest that is earned or charged on both the principal amount and on the accrued interest that has been previously earned or charged is

accrued interest.

compound interest.

simple interest.

stated interest.

Question 2

A company has a fixed principal commercial loan where the amount borrowed is $120,000 for 5 years at 8 percent. The first monthly payment will be:

$2,000

$2,800

$9.600

$11.600

2 points

Question 3

Using the rule of 72, how long will it take $1,000 to double if you earn 6% interest per year?

6 years.

7.2 years.

10 years.

12 years.

Cannot tell from the information provided.

2 points

Question 4

You have to make a balloon payment on your house five years from now of $15,000. If money can earn an average of 6 percent a year for the five year period, how much will you have to place in the account today to have the $15,000 in five years?

$11,193.00.

$11,209.50.

$20,073.00.

$20,101.50.

2 points

Question 5

You have to make a balloon payment on your house five years from now of $15,000. If money can earn an average of 6 percent a year for the five year period, how much interest will you earn on your deposit in five years?

$3,790.50

$3,807.00

$5,073.00

$5,101.50

2 points

Question 6

JT purchases 1,000 shares of stock at $23.50 per share in January 2006. He sells the 1,000 shares in January, 2011 for $35.50 per share. What is his internal rate of return?

10.86%

16.08%

8.60%

6.08%

2 points

Question 7

N. Trest bought a $10,000 Treasury bill at a 1.32% discount for 13 weeks (91 days). How much does N pay for the bond?

$10,000

$9,967.09

$9,870.54

$9,685.90

2 points

Question 8

A noted free agent running back just signed a 4 year $30 million dollar contract with a new team. He will get a 7 million dollar signing bonus and a 4.5 million dollar roster bonus. Additionally, his salary will be 3.25 million for year 1, 5.25 million for year 2, 5 million for year 3 and 5 million for year 4. Salary is paid at the end of the year. Find the present value of hiw contract if money can earn 6%.

$15,897,083.78

$27,397,083.78

$23,911,000.35

$30,000,000.00

2 points

Question 9

A college education costs approximately $75,000 at an Ivy league school. If inflation averages 5% per year, what will be the cost of the college education in 15 years?

$1,745,697.74

$155,917.50

$125,754.75

$36,076.28

2 points

Question 10

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year. You plan to retire in 20 years. The stock has a growth rate of 15 percent per annum. How much would your employer give you in stock bonuses during the twenty years?

$1,000.

$15,000.

$20,000.

None of the above.

2 points

Question 11

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year. You plan to retire in 20 years. The stock has a growth rate of 15 percent per annum. What will the value of your stock be in 20 years?

$117,810.10.

$102,443.60.

$86,442.10.

$72,035.10.

Cannot determine with the information provided.

2 points

Question 12

Your employer gives you a stock bonus of $1,000 in your company at the beginning of each year. You plan to retire in 20 years. The stock has a growth rate of 15 percent per annum. What will the value of your gain on the stock be for the 20 years?

$52,035.00.

$82,443.60.

$97,810.10.

None of the above.

2 points

Question 13

How much will you have in a Roth IRA if you invest $5,000 a year for 35 years if money earns 6% and you make the investment at the end of the year?

$590,604.33

$557,173.89

$451,601.54

$474,181.61

2 points

Question 14

The city of Metropolis borrows $88,000,000 so that it can build a football stadium. It plans to set up a sinking fund that will repay the laon 10 years later. Assume a 6% interest rate per year. What will Metropolis have to place in the fund in the beginning of each year in order to pay back the $88,000,000?

$534,309

$536,980

$6,298,472

$6,676,380

2 points

Question 15

To determine the mortgage payment on a home loan with payments made at the beginning of each month, you would

determine the present value factor of an annuity due and divide the factor into the loan to determine the payment.

determine the present value factor of an annuity due and multiply the factor by the loan amount to determine the payment.

determine the present value factor of an ordinary annuity and divide the factor into the loan to determine the payment.

determine the present value factor of an ordinary annuity and multiply the factor by the loan amount to determine the payment.

2 points

Question 16

John Adams plans to retire at the age of 62. He wants an annual income of $60,000 per year. John is currently 45 years of age. How much does he have to place at the beginning of each year into a retirement account earning 15% per year in order to have an adequate retirement nest egg at age 62? He believes that he will live to be 87 and plans to earn 12% during retirement. He will draw the money at the end of each year. The solution to this problem requires us to use the _________ and the __________ factors.

present value of a future annuity; future value of an ordinary annuity

future value of an ordinary annuity; future value of an annuity due

present value of an annuity due; future value of an annuity due

present value of an ordinary annuity; future value of an annuity due

2 points

Question 17

John Adams plans to retire at the age of 62. He wants an annual income of $60,000 per year. He believes that he will live to be 87. He will draw the money at the end of each year. How much money will he need when he retires in order to support his $60,000 annual life style if he will average 12 percent per year on his retirement account?

$439,800.

$470,586.

$505,302.

$527,058.

2 points

Question 18

John Adams plans to retire at the age of 62. He wants an annual income of $60,000 per year. He believes that he will live to be 87. He will draw the money at the end of each year. How much interest will he earn during his retirement years if he will average 12 percent per year on his retirement account?

$972,941

$994,699

$1,029,414

$1,060,200

2 points

Question 19

The acquisition of all the following assets are considered in capital budgeting except

bringing a new product to market.

purchase of inventory.

purchase of trucks.

purchase of office equipment.

2 points

Question 20

Which of the following is not a step in the capital budgeting decision?

corrective action.

evaluating the data.

formulating a proposal.

making a decision to minimize the greatest future benefit.

post audit.

2 points

Question 21

Which of the following costs must be considered in evaluating a capital budgeting decision?

start-up costs.

tax factor costs.

working capital commitment costs.

all of the above.

2 points

Question 22

You own a restaurant and just negotiated a decrease in the cost of steaks by 25 cents a steak. You normally sell 300,000 steak dinners a year. Your business pays an average of 30 percent in income taxes. What is the annual benefit of this increased efficiency?

$22,500.

$52,500.

$75,000.

$210,000.

2 points

Question 23

Anna Taylor buys a machine for her business. The machine costs $150,000. Anna estimates that the machine can produce $40,000 cash inflow per year for the next five years. Her cost of capital is 12 percent. What is the approximate present value of the future cash flow for Anna?

$184,192.

$164,456.

$161,492.

$144,192.

2 points

Question 24

Anna Taylor buys a machine for her business. The machine costs $150,000. Anna estimates that the machine can produce $40,000 cash inflow per year for the next five years. Her cost of capital is 12 percent. What is the approximate net present value?

$34,192.

$14,456.

$11,492.

$(5,808).

2 points

Question 25

Anna Taylor buys a machine for her business. The machine costs $150,000. Anna estimates that the machine can produce $40,000 cash inflow per year for the next five years. Her cost of capital is 12 percent. What is the approximate profitability index of this investment?

0.96.

1.08.

1.10.

1.22.

2 points

Question 26

George William buys a machine for his business. The machine costs $150,000. George estimates that the machine can produce $40,000 cash inflow per year for the next five years. George s cost of capital is 12 percent. What is the approximate internal rate of return?

8.95%.

9.43%.

10.43%.

11.59%.

2 points

Question 27

Cheryl Peck purchased a computer network for her classroom. The computer network cost $100,000. She estimates that she can charge $500 for one session in the classroom. Cheryl knows that enrollment will increase over time. She estimates 50 students the first year, 75 students the second year, 100 students the third year, and 150 students the fourth year. If her cost of capital is 12 percent, what is her accounting rate of return?

33.87%.

46.88%.

64.87%.

78.33%.

2 points

Question 28

George William buys a machine for his business. The machine costs $200,000. George estimates that the machine can produce $40,000 cash inflow per year for the next five years. George’s cost of capital is 10%. What is the payback for this investment?

1.25 years

3.75 years.

5 years

9.43 years

2 points

Question 29

Sam Jones has an engineering firm. He wants to build a new headquarters building. The building will cost $1,500,000. He will put down $450,000 and have a bank finance the remainder at prime plus 2 percent. The prime lending rate is currently 8.5 percent. Sam will withdraw the money for the down payment from his mutual fund account where he has earned 13% for the last ten years. What percentage of the building is being equity financed?

10.5%.

13%.

30%.

70%.

2 points

Question 30

Sam Jones has an engineering firm. He wants to build a new headquarters building. The building will cost $1,500,000. He will put down $450,000 and have a bank finance the remainder at prime plus 2 percent. The prime lending rate is currently 8.5 percent. Sam will withdraw the money for the down payment from his mutual fund account where he has earned 13% for the last ten years. What percentage of the building is being financed with other people s money?

10.5%.

13%.

30%.

70%.

2 points

Question 31

Sam Jones has an engineering firm. He wants to build a new headquarters building. The building will cost $1,500,000. He will put down $1,050,000 and have a bank finance the remainder at prime plus 2 percent. The prime lending rate is currently 8.5 percent. Sam will withdraw the money for the down payment from his mutual fund account where he has earned 13% for the last ten years. What is Sam s weighted average cost of capital?

8.5%.

10.5%.

11.25%.

12.25%.

2 points

Question 32

Glen Write owns an engineering firm. He asked his employees for suggestions regarding equipment they thought the firm would need during the next year. They suggested the purchase of eight pieces of equipment. Glen calculated the net present value of each recommendation. Glenn has a policy of purchasing only one item per year. Which alternative to capital budgeting is Glen using?

capital rationing.

mutually exclusive.

non-mutually exclusive.

positive NPV.

2 points

Question 33

A restaurant is trying to determine the lowest total cost for purchasing a replacement freezer. The cost of capital is 6% and the freezer should last for 11 years. The freezer initially cost $25,000. The annual electric bill is $3,600 and the salvage value is $6,000. What is the total cost for this freezer?

$34,600

$50,232.09

$50,700.40

$53,861.13

2 points

Question 34

The IRR can be used for investments

that produce equal cash flows.

that produce unequal cash flows.

that produce a lump sum future value.

all of the above.

2 points

Question 35

Risk is a term indicating all of the following except

the certainty of future outcomes.

the probability that an expected outcome will occur.

the uncertainty of future outcomes.

the variability of the expected outcome.

2 points

Question 36

To have an insurable loss, all of the following criteria apply except

the potential loss must be reasonably predictable.

the loss must be accidental.

the loss should be beyond the control of the insured.

the loss should be catastrophic for the insurance company.

2 points

Question 37

John owns a small department store that issues its own credit cards. He has been considering phasing out his own credit card and accepting Visa or MasterCard. If John chooses to do this he will be going from a position of risk _______________ to one of risk ___________.

assumption, avoidance

avoidance, reduction

reduction, transfer

assumption, transfer

2 points

Question 38

Which of the following holds true for term insurance?

premiums are paid for insurance and savings.

premiums decrease with age.

premiums increase with age.

term policies are renewed at a lower rate.

2 points

Question 39

Which of the following holds true for term insurance?

all cash value is returned upon death.

policies cannot be used as collateral.

premiums paid have cash value.

premiums are paid for insurance only.

2 points

Question 40

Which of the following is the least liquid of all investments?

cash.

bonds.

certificates of deposit.

real estate.

2 points

Question 41

According to Moody’s Corporate Bond Ratings, bonds which are rated ________ are judged to be of the best quality?

A

Aaa

Baa

Ba

2 points

Question 42

The coupon rate on a bond is the

rate of interest the issuer agrees to pay to the lender on an annual basis.

rate of interest everyone else receives on bonds of a similar nature.

rate of interest the issuer agrees to pay the lender on a semi-annual basis.

rate of interest the lender agrees to pay the issuer on an annual basis.

2 points

Question 43

As the number of shares of common stock increases, the book value of each share will _____________ if equity does not change.

decrease

increase

remain the same

none of the above

2 points

Question 44

Which of the following is a feature of cumulative preferred stock?

dividends accumulate and are paid each year.

dividends in arrears are paid to both preferred and common stockholders.

dividends in arrears are paid to common stockholders.

dividends in arrears are paid to preferred stockholders.

2 points

Question 45

Balanced mutual funds

appeal to the investor who has a moderate tolerance for risk.

invest only in stocks.

invest only in bonds.

provide capital growth through bond coupon payments.

2 points

Question 46

Joe Dough buys $300 worth of ABC mutual fund every month. In June Joe pays $30 per share, in July he pays $25 per share and in August he pays $50 per share. What is Joe s average price per share?

$27.50.

$32.14.

$35.00.

$37.50.

2 points

Question 47

Which of the following is true about a Roth IRA?

The amount invested and the gain are both taxed.

The amount invested is taxed and the gain is not taxed.

Neither the investment or the gain are taxed.

The amount invested is not taxed and the gain is taxed.

2 points

Question 48

Wills

are not vital for single business owners.

are written documents that provide direction to others as to how you want your wishes carried out after death.

describe the disposition of business assets.

require the court to appoint an administrator.

2 points

Question 49

Section 529 plans

have tax free withdrawals if the money is used for qualified expenses.

have withdrawals which are taxed.

have tax free withdrawals if the money is used to buy a first home.

include prepaid tuition plans only.

2 points

Question 50

Keogh plans

are for the self employed.

usually have additional costs due to payroll taxes that have to be factored in.

usually are combinations of profit sharing and 401k’s.

all of the above.