Quiz 2 Problems - Corporate Financial Management | FIN 4360, Quizzes of Finance

Download Quiz 2 Problems - Corporate Financial Management | FIN 4360 and more Quizzes Finance in PDF only on Docsity! Finance 4360; Quiz 2; Spring 2008; 1:00 Class Name _________________________________ 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 $100,000 and will repay the loan by making semiannual payments. Your first payment will be ten months from today and your final payment will be four years and ten months from today. Unlike a traditional loan, your payments will grow by 2% each. The APR on the loan is 6% with semiannual compounding. 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 “C” (or PV) in your first step? 2. What would you use for “N” in your second step? 3. If you use the same interest rate in both steps, what would you use for “n” in your first step? 4. Assume an APR of 7.5% with quarterly compounding. Set up to calculate the interest rate you would need to use to determine the present value of a series of semiannual withdrawals. 5. You have just purchased a stock that is expected to pay a dividend of $0.50 per share two months from today. After the $0.50 dividend, you expect the firm to continue to pay quarterly dividends forever and to increase its dividend by 1% per quarter forever. List the sequence of steps that will allow you to determine the value of the stock today. Note: you do not need to use any equations or numbers to answer this question!