Download 5 Questions on Corporate Financial Management for Quiz 4 | FIN 4360 and more Quizzes Finance in PDF only on Docsity! Finance 4360; Key to Quiz 4; Spring 2008; 1:00 Class Note: For any question with numbers, all of the points are earned by setting up solutions. There are no points for any calculations. As a result, you will likely earn a higher grade on this quiz if you simply set up problems but never touch your calculator. “Setting up solutions” may involve writing a single number. Use following information to answer questions 1-3 You are considering investing enough in an amortized CD at your bank that the CD will pay you $100 every six months beginning seven months from today and continuing through four years and one months from today. You plan to determine how much you will need to invest in two steps: 1) present value of an annuity (or a growing annuity where g = 0), 2) present value of a single sum. 1. What would you use for “C” in your first step? 100 2. What would you use for “N” in your first step? 8 3. If you use the same interest rate in step 2) that you did in step 1, what would you use for “n” in your second step? 1/6 4. Assume an APR of 6% with monthly compounding. Set up to calculate the equivalent interest rate you would need to use to determine the present value of a series of semiannual deposits. 12 06. 12 1 r 11 6 12 1 2 1 rr 5. You have just invested $5000 in a security that will make semiannual payments to you. The first payment will occur one year from today, the last payment will occur five years from today, and each subsequent payment will grow by 2% each. List the sequence of steps you that would allow you to determine the size of the first and third payment you can expect to receive. If you are not solving for the “name” of the step (such as the present value of a single sum), state what you are solving for (such as payment or interest rate or number of payments). Assume you have an interest rate that you can use to calculate present or future values. Note: you do not need to use any equations or numbers to answer this question! Future value of a cash flow Present value of a growing annuity, solve for payment Note: future value of a growing annuity will also work Future value of a cash flow
