BUSN379 Fundamentals of Corporate Finance: HWES2 (8 items) – Version 2

BUSN379 Corporate Finance
HWES2 (with supporting Solution) – Version 2

1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 15% 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
$9203
None of the above

2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 16% APR compounded daily. The EAR for First Choice and National Emerald Bank are: (Points : 3)
9.31% and 17.35%, respectively
9% and 17.50%, respectively
9.31% and 17.50%, respectively
9% and 17.35%, respectively

3. (TCO 3) LED Computer Electronics is considering an investment that will have cash flows of $5,000, $6,000, $7,000 and $10,000 for years 1 through 4. What is the approximate value of this investment today if the appropriate discount rate is 9% per year? (Points : 3)
$22,250
$30,520
$22,120
None of the above

4. (TCO 3) Which of the following will increase the total amount of interest earned on an investment assuming that all interest is reinvested? Select all answers that apply: (Points : 4)
increasing the frequency of the interest payments
decreasing the frequency of the interest payments
increasing the interest rate
decreasing the interest rate

5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your second payment will be applied towards the principal of the loan?(Points : 3)
$5,000
$4,372
$4,809
can not be determined with the information given

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

Answer

: Amortized Loan

: Interest-only Loan

: Treasury Bill

: Pure Discount Loan



Potential Matches:

1 : is usually a pure discount loan issued by theUSgovernment.

2 : Corporate bonds are usually issued as this form of loans.

3 : You borrow $3,000 from your bank at 10% interest. You will make no payments for two months but will return the full amount plus interest at the end of three months.

4 : obtained a 5-year loan from your bank to buy a new machine. You will pay $500 per month to cover both interest and principal.



7. (TCO 3) You are interested in saving to buy a new machine that costs $1,105. You can deposit $250 in your bank today. If your bank pays 8% annual interest on its accounts, how long will it take you to save for the new machine? (Points : 4)

about 19 years

about 9 years

about 4.5 years

Can not be determined



8. (TCO 3) What are some real-life scenarios where you can apply the time value of money? (Points : 6)

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