# FIN 534 MIDTERM PART 2

Aug 9th, 2016
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This exam consist of 25 multiple choice questions and covers the material in Chapters 4 through 7. 1. At the end of 10 years, which of the following investments would have the highest future value? Assume that the effective annual rate for all investments is the same and is greater than zero. Answer Investment A pays \$250 at the beginning of every year for the next 10 years (a total of 10 payments). Investment B pays \$125 at the end of every 6-month period for the next 10 years (a total of 20 payments). Investment C pays \$125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). Investment D pays \$2,500 at the end of 10 years (just one payment). Investment E pays \$250 at the end of every year for the next 10 years (a total of 10 payments). 2. Which of the following statements is CORRECT? Answer An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. The present value of

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FIN 534 MIDTERM PART 2This exam consist of 25 multiple choice questions and covers the material in Chapters 4 through7.1. At the end of 10 years, which of the following investments would have the highest futurevalue? Assume that the effective annual rate for all investments is the same and is greater thanzero.AnswerInvestment A pays \$250 at the beginning of every year for the next 10 years (a total of 10payments).Investment B pays \$125 at the end of every 6-month period for the next 10 years (a total of 20payments).Investment C pays \$125 at the beginning of every 6-month period for the next 10 years (a total of20 payments).Investment D pays \$2,500 at the end of 10 years (just one payment).Investment E pays \$250 at the end of every year for the next 10 years (a total of 10 payments).2. Which of the following statements is CORRECT?AnswerAn investment that has a nominal rate of 6% with semiannual payments will have an effectiverate that is smaller than 6%.The present value of a 3-year, \$150 ordinary annuity will exceed the present value of a 3-year,\$150 annuity due.If a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.If a loan or investment has annual payments, then the effective, periodic, and nominal rates ofinterest will all be different.The proportion of the payment that goes toward interest on a fully amortized loan increases overtime.3. Which of the following statements is CORRECT?AnswerIf some cash f

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