Key to Quiz 2 for Corporate Financial Management | FIN 4360, Quizzes of Finance

Download Key to Quiz 2 for Corporate Financial Management | FIN 4360 and more Quizzes Finance in PDF only on Docsity! Finance 4360; Key to Quiz 2; Spring 2008; 9:00 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 have just borrowed $200,000 and will repay the loan by making quarterly payments beginning five months from today and continuing through three years and eleven months from today. Unlike a traditional loan, your payments will grow by 1% each. The APR on the loan with quarterly compounding is 8%. You plan to solve for your payment in two steps: 1) future value of a single sum, 2) present value of a growing annuity where you solve for the payment. 1. What would you use for “g” in your second step? .01 2. What would you use for “N” in your second step? 15 3. If you use the same interest rate in both steps, what would you use for “n” in your first step? 2/3 4. Assume an APR of 5.5% with monthly compounding. Set up to calculate the interest rate you would need to use to determine the future value of a series of quarterly deposits.   12 055. 12 1 r      11 3 12 1 4 1  rr 5. You have just purchased a bond that pays semiannual coupons of $30 each with the next coupon being paid four months from today. List the sequence of steps that will allow you to determine the value of the coupon payments today. Note: you do not need to use any equations or numbers to answer this question! 1) present value of an annuity 2) future value of a lump sum