Midterm Exam

1081 Words Feb 12th, 2012 5 Pages
NAME: _______________________________

BSAD 180: Managerial Finance
Midterm Exam
I. Multiple Choices (40%)

( b) 1. The primary goal of financial management is to: a. maximize current dividends per share of the existing stock. b. maximize the current value per share of the existing stock. c. avoid financial distress. d. minimize operational costs and maximize firm efficiency. e. maintain steady growth in both sales and net earnings. ( c ) 2. The interest rate expressed as if it were compounded once per year is called the _____ rate. a. stated interest b. compound interest c. effective annual d. periodic interest e. daily interest ( b ) 3. You are comparing
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How much can you withdraw each month from your account assuming a 25-year withdrawal period?

2. Miller Corp. has a premium bond making semiannual payments. The bond pays an 8% coupon, has a YTM of 6%, and has 10 years to maturity. The Modigliani Corp. has a discount bond making annual payments. The bond pays a 6% coupon, has a YTM of 8%, and also has 10 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 5 years? In 10 years? Please also illustrate your answers by graphing bond prices versus time to maturity.

3. Define the following terms:
(a) Pure discount loan.
(b) YTM.
(c) Call bond.

4. You are ready to buy a house and you have $20,000 for a down payment and closing costs. Closing costs are estimated to be $5,000. The interest rate on the loan is 5.5% per year with monthly compounding for a 30-year fixed rate loan. You are able to buy the house at $165,000. What is the monthly payment? Suppose that you have an annual salary of $50,000. What is the ratio of the mortgage payment to your monthly income?

5. You receive a credit card application from Muwa Bank offering an introductory rate of 1.99% per year, compounded monthly for the first 6 months, increasing thereafter to 22.99% compounded monthly. Assuming that you transfer the $5,000 balance from your existing credit card and make

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