Section A – Multiple choice questions
Instructions to candidate:
Please answer all 15 Multiple Choice Questions in the space provided below. Each
... [Show More] question in this section
is worth 2 marks. There are no negative marks.
Question 1A
Suppose you invest $5,000 into an account that pays 10% interest, compounded monthly. How much will
you have in this account at the end of year 6?
A. $9524.68
B. $9644.24
C. $9581.70
D. $9087.97
Question 2A
Which of the following is not one of the five basic corporate finance functions?
A. Financial management
B. Capital budgeting function
C. Risk management
D. Auditing
Question 3A
In the equation below, what does the number 3 represent?
$75.13 = $100
(1 + 0.10)�
A. The present value a cash flow to be received at a later date
B. The future value a cash flow to be received at a later date
C. The discount rate for the future cash flow
D. The number of periods before the cash flow is to be received
Question 4A
A 15-year 9% coupon bond with a face value of $1000 is currently trading at $1100. The yield to maturity
of this bond:
A. must be greater than 9%
B. must be equal to 9%
C. must be less than 9%
D. is unknown
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BUSN1015 Foundations of Finance – Sample Mid-Semester Exam Paper – Solutions
Question 5A
Bavarian Sausage just issued a 12-year 6% coupon bond. The face value of the bond is $1000 and the bond
makes annual coupon payments. If the required return on the bond is 11%, what is the bond’s price?
A. $815.66
B. $923.67
C. $675.38
D. $1256.35
Question 6A
Your parents set up a trust fund for you that you will not have access to until your 30th birthday, which is
in exactly nine years from today. By prior arrangement, the trust will be worth exactly $200 000 on your
30th birthday. You need cash today and are willing to sell the rights to that trust today for a set amount. If
the discount rate for such a cash flow is 12%, what is the maximum amount that someone should be willing
to pay you today for the rights to the trust on your 30th birthday?
A. $72 122.01
B. $178 571.43
C. $224 000.00
D. $225 000.00
Question 7A
Which statement about ordinary shareholders is incorrect?
A. Shareholders only have a residual claim.
B. Shareholders have precedence over all other claimholders in the case of bankruptcy.
C. Shareholders have voting rights.
D. Shareholders are the ultimate owners of a corporation.
Question 8A
ABC Inc. has increased its annual ordinary dividend by 4% in each of the years that the company has
existed. If you believe that the company can continue to do so indefinitely, then what price would you be
willing to pay for ABC Inc. if the required rate of return is 7% and the dividend that it just paid today was
$6?
A. $85.83
B. $166.67
C. $171.67
D. $208.00
This study source was downloaded by 100000822164684 from CourseHero.com on 06-17-2021 05:31:14 GMT -05:00
https://www.coursehero.com/file/41970287/Mid-semester-Exam-Sample-2019-solutionspdf/
This study resource was
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BUSN1015 Foundations of Finance – Sample Mid-Semester Exam Paper – Solutions
Question 9A
Which of the following statements is true?
A. In an annuity due, payments occur at the end of the period.
B. In an ordinary annuity, payments occur at the end of the period.
C. A perpetuity will mature at some point in the future.
D. One cannot calculate the present value of a perpetuity.
Question 10A
What is the effective annual rate (EAR) of 14% p.a. compounded monthly?
A. 14.00%
B. 14.45%
C. 14.68%
D. 14.93%
Question 11A [Show Less]