Financial Management Quiz 1 - Summer 2002, Quizzes of Financial Management

Download Financial Management Quiz 1 - Summer 2002 and more Quizzes Financial Management in PDF only on Docsity! Quiz 1 (100 Points) Finance 316: Financial Management John M.R. Chalmers Summer 2002 Associate Professor of Finance 1) (4 pts) How much money will you have in the bank 4 years from today if you invest $300 and earn 10% interest compounded monthly? What is your effective annual interest rate? FVq = 300(1t~yL~q = qqL.61 EAR= (\++z-l_ io.T/z 2) (4 pts) What is the objective of a firm’s manager? M&V.Ai~Q ShML\s\er's WeaK 3) (4 pts) Why might managers not have the same objective as shareholders in a corporation? Mana ecs % o r e v\oc OWIA~CZ macessa*;l ecm5.iK U~_M ti VI0 affect w+---.~ecIb.& G.wrLc 3,: @ 2 -LL ecFtierK. % \4SS i*CC&iy &I +b+CjrrritQ Shm~e\a -iLU- 4) 49-y 6hs. (4 pts) Provide two examples of decisions that a financial manager might make? - Inocsf &. 6 new C\cip pr&&~ T,ci\i & X&e\. _ &,i&_& issup BeH 5) (4 pts) What are two advantages to being a sole-proprietor rather than a corporation? 1) T&e&? CU\ Cl On: wi+L ~&tv4oZ~~_1) More priuac3 3 ) t)aoe 0~\y \C +o xh h be&s .c access. 6) y0wse (10 pts) You wish that you had a trust fund that paid you $1 million five years from today. What is the most you could borrow today if you promised to repay the loan by turning over the $1 million dollars from your trust at year 5? Assume that the interest rate is 10% compounded semi-annually, and that you will make no payments to the bank until your trust is available, at which point $1 million will completely pay off your debt. 7) (15 pts) You want to retire witl $1 million in the bank. You have $10,000 in your savings account today. What is theL contribution that you must make to your account if you arc to retire 40 years from today. Assume that you will earn 10% compounded 8) (15 pts) The Vanguard Group is a mutual fund company which offers a wide variety of index funds. Vanguard argues that these index funds are a useful way to invest because of their very low expense ratios. Vanguard’s typical index fund expends .30% per year on fund expenses. A typical mutual timd expends 1.30% on fund expenses. If Vanguard’s index funds and another Curd’s mutual funds can be expected to earn 12.3% before expenses, how much more money will you have if you invest $500 / month for 30 years with Vanguard (expected net annual return = 12%) versus $500 /month for 30 years with a more expensive mutual fund (expected net annual return 1 l%)? Rates are compounded monthly.