FIN 325 Exam 1 Study Guide Questions with Correct
Answers
What is the monthly payment on a $200,000, 15-year mortgage if the
interest rate is 6%. Correct Answer-1688
N=12*15, I/y = 6/12, PV = 200000, FV = 0 and solve for PMT
You have 15 years until you plan to retire. You are saving $500 each
month for retirement. You expect to earn 8% on your investment. How
much will you have accumulated in 15 years? Correct Answer-173019
Make sure your calculator is set to an ending annuity. N=15*12,
I/y=8/12, PV=0, PMT=500 and solve for FV
Your friend is going to purchase a car and will finance it. She is
borrowing $20,000 at a monthly rate of 0.50% and will pay it off over 5
years. What is the monthly payment? Correct Answer-386.67
PV = 20,000
I/y = 0.50
n = 12 * 5
FV = 0
CPT PMT which equals $386.67
,You invest in a stock mutual fund. Your purchase price is $78.44 per
share. During the year you receive a distribution of $1.87 and at the end
of the year the fund is selling for $79.8 per year. What is your realized
return during the year? Correct Answer-4.1178
((ending price - beginning price) + distribution) / beginning price
So if beginning price is 70 and ending price is 75 and distribution is 1.5
(75-70+1.5)/70 = 9.29%
You are looking at a rental property. You believe you can purchase it for
$150,000 and will hold it for 5 years and then sell it. You anticipate
receiving the following cash inflows at the end of each year.
Year 1: $3,500
Year 2: $4,500
Year 3: $5,000
Year 4: $3,000
Year 5: $3,500 and you then you believe you will sell it for $175,000
What is your expected return? This is an IRR problem and you will need
to use your cash flow register. Correct Answer-5.59
Use your cash flow register
, CF0: -150,000
CF1: $3,500
F01:1
CF 2: $4,500
F02:1
CF 3: $5,000
F03:1
CF 4: $3,000
F04:1
CF 5: $3,500 + 175,000
F05:1
Because stocks historically have outperformed bonds and cash, all
investors should overweight stocks. Correct Answer-False
Older investors tend to be more risk averse (lower risk tolerance) and
thus may have very little invested in stocks. They cant' go back in the
work force and earn back losses.
All rational investors are risk averse and thus will seek to minimize the
amount of risk they take. Correct Answer-False
This is a false statement. If you simply minimize risk you will only hold
risk-free assets. The will minimize their risk for any level of expected
Answers
What is the monthly payment on a $200,000, 15-year mortgage if the
interest rate is 6%. Correct Answer-1688
N=12*15, I/y = 6/12, PV = 200000, FV = 0 and solve for PMT
You have 15 years until you plan to retire. You are saving $500 each
month for retirement. You expect to earn 8% on your investment. How
much will you have accumulated in 15 years? Correct Answer-173019
Make sure your calculator is set to an ending annuity. N=15*12,
I/y=8/12, PV=0, PMT=500 and solve for FV
Your friend is going to purchase a car and will finance it. She is
borrowing $20,000 at a monthly rate of 0.50% and will pay it off over 5
years. What is the monthly payment? Correct Answer-386.67
PV = 20,000
I/y = 0.50
n = 12 * 5
FV = 0
CPT PMT which equals $386.67
,You invest in a stock mutual fund. Your purchase price is $78.44 per
share. During the year you receive a distribution of $1.87 and at the end
of the year the fund is selling for $79.8 per year. What is your realized
return during the year? Correct Answer-4.1178
((ending price - beginning price) + distribution) / beginning price
So if beginning price is 70 and ending price is 75 and distribution is 1.5
(75-70+1.5)/70 = 9.29%
You are looking at a rental property. You believe you can purchase it for
$150,000 and will hold it for 5 years and then sell it. You anticipate
receiving the following cash inflows at the end of each year.
Year 1: $3,500
Year 2: $4,500
Year 3: $5,000
Year 4: $3,000
Year 5: $3,500 and you then you believe you will sell it for $175,000
What is your expected return? This is an IRR problem and you will need
to use your cash flow register. Correct Answer-5.59
Use your cash flow register
, CF0: -150,000
CF1: $3,500
F01:1
CF 2: $4,500
F02:1
CF 3: $5,000
F03:1
CF 4: $3,000
F04:1
CF 5: $3,500 + 175,000
F05:1
Because stocks historically have outperformed bonds and cash, all
investors should overweight stocks. Correct Answer-False
Older investors tend to be more risk averse (lower risk tolerance) and
thus may have very little invested in stocks. They cant' go back in the
work force and earn back losses.
All rational investors are risk averse and thus will seek to minimize the
amount of risk they take. Correct Answer-False
This is a false statement. If you simply minimize risk you will only hold
risk-free assets. The will minimize their risk for any level of expected
