Which of the following conclusions would be true if you earn a higher rate of return on your investments? a. The greater the present value would be for any lump sum you would receive in the future. b. The lower the present value would be for any lump sum you would receive in the future. c. Your rate of return would not have any effect on the present value of any sum to be received in the future. d. The greater the present value would be for any annuity you would receive in the future. 2) At what rate must $500 be compounded annually for it to grow to $1,079.46 in 10 years? a. 6 percent b. 7 percent c. 8 percent d. 5 percent 3) What is the present value of $12,500 to be received 10 years from today? Assume a discount rate of 8% compounded annually and round to the nearest $10. a. $17,010 b. $9,210 c. $11,574 d. $5,790 4) The appropriate measure for risk according to the capital asset pricing model is: a. the standard deviation of a firm’s cash flows b. alpha c. the standard deviation of a firm’s stock returns d. beta 5) How much money must you pay into an account at the end of each of 20 years in order to have $100,000 at the end of the 20th year? Assume that the account pays 6% per year, and round to the nearest $1. a. $2,195 b. $1,840 c. $2,028 d. $2,718 Unit 2 Examination 98 Introduction to Financial Management 6) You have the choice of two equally risk annuities, each paying $5,000 per year for 8 years. One is an annuity due and the other is an ordinary annuity. If you are going to be receiving the annuity payments, which annuity would you choose to maximize your wealth? a. The annuity due b. Either one because they have the same present value. c. The ordinary annuity d. Since we don’t know the interest rate, we can’t find the value of the annuities and hence we cannot tell which one is better. 7) If you put $1,000 in a savings account that yields 8% compounded semi-annually, how much money will you have in the account in 20 years (round to nearest $10)? a. $4,660 b. $4,801 c. $2,190 d. $1,480 8) You want $20,000 in 5 years to take your spouse on a second honeymoon. Your investment account earns 7% compounded semiannually. How much money must you put in the investment account today? (round to the nearest $1) a. $14,178 b. $15,985 c. $13,349 d. $12,367 9) You invest $1,000 at a variable rate of interest. Initially the rate is 4% compounded annually for the first year, and the rate increases one-half of one percent annually for five years (year two’s rate is 4.5%, year three’s rate is 5.0%, etc.). How much will you have in the account after five years? a. $1,462 b. $1,359 c. $1,276 d. $1,338 10) Assume that you have $165,000 invested in a stock that is returning 11.50%, $85,000 invested in a stock that is returning 22.75%, and $235,000 invested in a stock that is returning 10.25%. What is the expected return of your portfolio? a. 14.8% b. 12.9% c. 18.3% d. 15.6% Unit 2 Examination 99 Intro.