# BUSN379 Fundamentals of Corporate Finance: HWES2 (8 items) - Version 1

BUSN379 Corporate Finance

HWES2 (with supporting solutions)

1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 10% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. (Points: 3)

$7425

$8690

$5740

None of the above

2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 19% APR compounded semiannually. The EAR for First Choice and National Emerald Bank are: (Points: 3)

9.31% and 19.90%, respectively

9% and 19.50%, respectively

9.31% and 19.50%, respectively

9% and 19.90%, respectively

3. (TCO 3) Computer Parts, Inc. is considering an investment that will have cash flows of $8,000, $7,000 and $4,000 for years 1 through 3. What is the approximate value of this investment today if the appropriate discount rate is 10% per year? (Points: 3)

$24,250

$20,900

$16,060

None of the above

4. (TCO 3) You deposited $8,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply: (Points: 4)

interest rate

initial amount of your deposit

frequency of the interest payments

None of the above will increase the value of the investment

5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your first payment will be applied towards the principal of the loan? (Points: 3)

$5,000

$4,372

$4,790

zero, all will be applied towards the interest

6. (TCO 3) Match the following terms with the examples as appropriate: (Points: 4)

Matching: Answer

: Pure discount loan

: Amortized Loan

: Interest-only Loan

: Treasury Bill

Potential Matches:

1: You obtained a business loan for four months. The loan will allow you to paid $300 in interest for three months and a final payment of interest and principal at the end of the four month.

2: You obtained a mortgage to buy a home. You will pay $800 per month to cover both interest and principal.

3: a way used by theUSgovernment to borrow money on short-term basis.

4: You borrow $1,000 from your best friend. In return, you will give him back $1150 in 3 months.

7. (TCO 3) You are interested in saving to buy a new machine that costs $3,700. You can deposit $1,941 in your bank today. If your bank pays 5% annual interest on its accounts, how long will it take you to save for the new machine? (Points: 4)

about 13 years

about 4.5 years

about 2 years

Can not be determined

8. (TCO 3) How can we apply the concept of time value of money in evaluating a mortgage? (Points: 6)

HWES2 (with supporting solutions)

1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 10% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. (Points: 3)

$7425

$8690

$5740

None of the above

2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 19% APR compounded semiannually. The EAR for First Choice and National Emerald Bank are: (Points: 3)

9.31% and 19.90%, respectively

9% and 19.50%, respectively

9.31% and 19.50%, respectively

9% and 19.90%, respectively

3. (TCO 3) Computer Parts, Inc. is considering an investment that will have cash flows of $8,000, $7,000 and $4,000 for years 1 through 3. What is the approximate value of this investment today if the appropriate discount rate is 10% per year? (Points: 3)

$24,250

$20,900

$16,060

None of the above

4. (TCO 3) You deposited $8,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply: (Points: 4)

interest rate

initial amount of your deposit

frequency of the interest payments

None of the above will increase the value of the investment

5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your first payment will be applied towards the principal of the loan? (Points: 3)

$5,000

$4,372

$4,790

zero, all will be applied towards the interest

6. (TCO 3) Match the following terms with the examples as appropriate: (Points: 4)

Matching: Answer

: Pure discount loan

: Amortized Loan

: Interest-only Loan

: Treasury Bill

Potential Matches:

1: You obtained a business loan for four months. The loan will allow you to paid $300 in interest for three months and a final payment of interest and principal at the end of the four month.

2: You obtained a mortgage to buy a home. You will pay $800 per month to cover both interest and principal.

3: a way used by theUSgovernment to borrow money on short-term basis.

4: You borrow $1,000 from your best friend. In return, you will give him back $1150 in 3 months.

7. (TCO 3) You are interested in saving to buy a new machine that costs $3,700. You can deposit $1,941 in your bank today. If your bank pays 5% annual interest on its accounts, how long will it take you to save for the new machine? (Points: 4)

about 13 years

about 4.5 years

about 2 years

Can not be determined

8. (TCO 3) How can we apply the concept of time value of money in evaluating a mortgage? (Points: 6)

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