# Midterm Exam

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Midterm Exam
NAME: _______________________________

Midterm Exam
I. Multiple Choices (40%)

( b) 1. The primary goal of financial management is to: a. maximize current dividends per share of the existing stock. b. maximize the current value per share of the existing stock. c. avoid financial distress. d. minimize operational costs and maximize firm efficiency. e. maintain steady growth in both sales and net earnings. ( c ) 2. The interest rate expressed as if it were compounded once per year is called the _____ rate. a. stated interest b. compound interest c. effective annual d. periodic interest e. daily interest ( b ) 3. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with \$20,000 of income. Option A pays five annual payments starting with \$8,000 the first year followed by four annual payments of \$3,000 each. Option B pays five annual payments of \$4,000 each. Which one of the following statements is correct given these two investment options? a. Both options are of equal value given that they both provide \$20,000 of income. b. Option A is the better choice of the two given any positive rate of return. c. Option B has a higher present value than option A given a positive rate of return. d. Option B has a lower future value at year 5 than option A given a zero rate of return. e. Option A is preferable because it is an annuity due. ( d ) 4. Your parents are giving you \$100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start college? a. \$3,797.40 b. \$4,167.09 c. \$4,198.79 d. \$4,258.03 e. \$4,279.32

( c ) 5. The time value of money concept can be defined as: a. the relationship between the supply and demand of money. b. the

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