Given the following information, calculate Fund PSU’s alpha: T-Bill Return: 3% S&P 500 Return: 7% Beta: 0.9 Beginning Fund Value: $14 Ending Fund Value: $16

Ending Fund Value: $16

A) -7.7%B) -5.0%C) 6.6%D) 4.0%E) 7.7%

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2.

Given the following information, calculate the firm’s beta: Expected Return: 6% Risk Free Rate: 3% Market Return: 9% Market Risk Premium: 6%

A) 0.50B) 0.33C) 1.00D) 0.97E) 0.67

3.

An investor will receive a 14-year annuity of $3,800 per year. If the annual interest rate is 5.5%, what is the present value of this annuity?

A) $77,112B) $69,091C) $4,935D) $36,441E) $53,200

4.

Elliot makes a payment of $2,800 a year on her car. At the end of 8 years, she’s paid off her initial $20,000 loan. What was her approximate interest rate?

A) 27.9%B) 2.6%C) 5.8%D) 1.5%E) 12.0%

5.

Your friend wants to borrow $4,000 from you and gives you three options for repayment. Assuming a discount rate of 5%, which of the following options should you choose? Option A: $800 a year for the next 5 years Option B: $4,200 lump sum paid 3 years from now Option C: $550 a year for the next 10 years

A) Option B because it is the highest net present valueB) You are indifferent because they all have the same net present valueC) Option A because it is the highest net present valueD) Option C because it is the highest net present valueE) You should not lend the money because all options are negative NPV investments

6.

Your Aunt needs $12,000 in 4 years. Her investment will return 6.5%. How much money does she need to invest today to reach her goal?

A) $15,438B) $3,502C) $41,109D) $5,288E) $9,328

7.

Global Corp. borrows $95 million at a rate of 6.00% to finance a new plant. They will fully repay the loan with annual payments in 8 years. How much will they pay in total over the 8 years to repay the loan in full?

A) $122,387,316B) $129,730,555C) $333,536,805D) $95,000,000E) $140,600,000

8.

Rachel will inherit a lump sum amount of $780,000 that is payable in 10 years. The current rate of return is 7.5%. What is the present value of the lump sum?

A) $160,760B) $585,000C) $83,850D) $378,451E) $1,607,605

9.

Which of the following is true regarding interest rates?

A) Increases in interest rates lead to increases in bond prices.B) The effect of a change in interest rates on bond and stock prices is unknown.C) Interest rates do not affect stock or bond prices.D) Increases in interest rates lead to increases in stock prices.E) Increases in interest rates lead to decreases in bond prices.

10.

Mary plans on retiring in 30 years by purchasing a house on the coast. He estimates he will need $850,000 saved at that time and is starting now. What payment would Mary need to make yearly into a savings account with a tax-rate of 30% and an average market return of 7.5%?

A) $8,221B) $8,483C) $12,254D) $944E) $28,333

11.

Calculate the firm’s expected return using the capital asset pricing model: Risk Free Rate: 7% Market Return: 10% Beta: 0.85 Standard Deviation: 4% Debt: Equity Ratio: 60%

A) 5.12%B) 9.55%C) 15.53%D) 2.55%E) 10.40%

12.

Sam took out a $450,000 home mortgage with 6% interest rate and equal annual payments. How much will he have to pay annually to repay the loan in 20 years?

A) $22,500B) $18,839C) $7,016D) $27,000E) $39,233

13.

If a stock has a beta of 4, what can one infer about the expectations of that stock relative to the market?

A) The stock is as risky as the market.B) The stock is four times as risky as the market.C) The stock will tend to double market movements.D) The stock’s expected return is equal to that of the market.E) The stock will tend to have movements equal to ¼ the market.

14.

Which of the following is true?

A) The higher the discount rate, the lower the NPV of an investmentB) A positive NPV means that the present value of future cash flows are less than the amount investedC) A positive alpha means that a firm’s actual return was lower than it’s expected returnD) The payback period adjusts for the risk of an investmentE) If the NPV of an investment is positive, the IRR of the investment is less than the discount rate

15.

State College LLC recently bought a piece of machinery for $20 million and expects cash flows generated from the investment in the next three years to be: $12 million, $14 million, and $12 million. Using a discount rate of 8%, calculate the NPV of the investment (rounded to the nearest million).

A) $13 millionB) $23 millionC) $18 millionD) $17 millionE) $38 million

16.

How much would you pay in total interest if you bought a car for $32,000 that was fully financed with a 5% auto loan that lasted 7 years (assuming that you make payments annually)?

A) $1,600B) $5,000C) $8,000D) $6,712E) $36,956

17.

Upon graduating from Penn State, Christian has $52,800 worth of student loans with an interest rate of 8.50%. How many years must the loan be if his annual payment budget is $9,000 (Rounded to the nearest number)?

A) 10 YearsB) 8 yearsC) 6 YearsD) 5 YearsE) 12 Years

18.

If you took out a $350,000 mortgage loan to be repaid over 30 years at 6.00%, calculate the amount of principal reduction in the first year (assuming that you make payments annually).

A) $25,840B) $3,825C) $30,010D) $16,491E) $4,427

19.

Dunder Mifflin invests in a new warehouse for $100,000. The investment is expected to generate cash flows in the next 3 years of: $30,000, $40,000, and $80,000. Calculate the IRR of the project.

A) 19.50%B) 12.5%C) 9.8%D) 4.0%E) 7.0%

20.

Given the following annual returns for Stock XYZ, what does a $1,000 investment grow to over the 5-year period? Year 1: -16% Year 2: 15% Year 3: 25% Year 4: -30% Year 5: -10%

A) $790B) $1,350C) $761D) $1,000E) $840

21.

Given the following information, in which order would you choose the following projects based on the profitability index? Project A (NPV of cash flows: $90,000, Investment Cost: $50,000) Project B (NPV of cash flows: $100,000, Investment Cost: $70,000) Project C (NPV of cash flows: $170,000, Investment Cost: $110,000)

A) Project B, Project C then Project AB) Project C, Project B then Project AC) Project A, Project C then Project BD) Project A, Project B then Project CE) Project C, Project A then Project B

22.

Woolridge LP is investing is considering investing in a project that will cost $90,000 and will generate $30,000 in cash flows for the next 5 years. Assuming a Discount Rate of 12%, which of the following is true?

A) All of the above are trueB) The project’s payback period is 5 yearsC) The project’s profitability index is 1.2D) The project’s NPV is $18,143E) The project’s IRR is 21.6%

23.

The _______ of a project is the discount rate that makes the _______ of an investment equal to zero.

A) Discounted cash flow, NPVB) IRR, NPVC) NPV, IRRD) Discount rate, IRRE) Expected rate of return, NPV

24.

A company’s investment rule when using the calculated Net Present Value (NPV) of a project is:

A) Invest in the project if the NPV is negative.B) Invest in the project only if its NPV is higher than last year’s project.C) Invest in the project if the NPV is positive.D) Invest in the project only if the NPV is zero.E) NPV is not useful in making investment decisions.

25.

Discounted Cash Flow analysis is used to determine the value of an investment based on the _______ value of _______ cash flows, discounted for risk and timing.

A) future, presentB) present, futureC) expected, presentD) forecasted, futureE) current, present

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