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University of Melbourne FNCE 1000 SampleMidSem1

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FNCE10002 Principles of Finance Semester 1, 2017 Sample Mid Semester Exam 1 This sample exam and the mid semester exam are based on the material covered in weeks 1 – 5. The exam duration is 60 minutes with no reading time. Detailed suggested answers to this sample exam will be placed on the LMS in due course. On the mid semester exam, you will be required to enter your answers on a general purpose answer sheet (GPAS). A sample GPAS is available via the Mid Semester Exam link. You will also be provided with adequate space for calculations, etc. in the exam booklet. Questions 1 through 3 are based on the following information. You have borrowed $20,000 from a bank for a five-year period. You will be making monthly payments on this loan and the interest rate on the loan is 12% per annum with interest compounded monthly. 1. The monthly payment on this loan is closest to: A. $200.00. B. $244.89. C. $444.89. D. $462.35. 2. The principal balance repaid in the first month is closest to: A. $200.00. B. $244.89. C. $444.89. D. $462.35. 3. The effective annual interest rate on this loan is closest to: A. 1.0% p.a. B. 12.0% p.a. C. 12.4% p.a. D. 12.7% p.a. 4. LOL Ltd has just issued a perpetual (that is, non-maturing) financial security that is expected to pay an annual coupon of $120 next year. This coupon will then decline at a rate of 2% per annum forever. Assuming a required return of 8% p.a., the price of this security today is closest to: A. $1,200. B. $1,500.FNCE10002 Principles of Finance Semester 1, 2017 Sample Mid Semester Exam 1 2 C. $2,000. D. $6,000. 5. Which of the following statement(s) for a coupon paying corporate bonds is (are) true? I. For bonds selling at par the yield to maturity and coupon rate will be equal. II. For bonds selling at a premium the yield to maturity will be higher than the coupon rate. III. For bonds selling at a discount the yield to maturity will be lower than the coupon rate. A. I only. B. I and II only. C. I and III only. D. I, II and III. 6. Your friend has won first prize in the Tenth Annual Sumochef Competition and offered one of the following options. Assuming an interest rate of 10% p.a., which option should your friend choose? (Assume end-of-the-year cash flows and round your final answers to the nearest dollar.) A. $99,000 today. B. $10,000 per annum for the next 50 years. C. $160,000 at the end of year 5. D. $5,000 next year growing at 5% p.a. forev

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