UNIVERSITY OF PHOENIX MBA 503 - Final Exam - Version A When finished, submit your answers to your individual forum.

DO NOT discuss this with any other person - -this is an individual final exam!! For the multiple choice answers only submit the question number and answer -do not include the question in your answer sheet. For other questions, please show all of your work for full credit.
1. As the interest rate increases, the present value of an amount to be received at the end of a fixed period: (2 points) A) increases. B) decreases. C) remains the same. D) Not enough information to tell. The concept of time value of money is important to financial decision making because: (2 points) A) it emphasizes earning a return on invested capital. B) it recognizes that earning a return makes $1 worth more today than $1 received in the future. C) it can be applied to future cash flows in order to compare different streams of income. D) all of the above Match the following with the items below: (2 points each/16 total) a. annuity b. future value c. future value of an annuity d. discount rate e. interest factor (IF) f. present value g. semi-annual compounding h. yield 1. _____ The payment of an equal stream of cash into a fund which increases in size (depending on the interest rate received) up to a future point in time. 2. _____ The interest or return is accumulated every six months. 3. _____ The discounted value of a future sum or annuity as of today's value. 4. _____ A series of consecutive payments or receipts of an equal amount. 5. _____ The percentage rate at which future sums or annuities are brought back to their present value. 6. _____ The future value of a single amount or annuity when compounded at a given interest rate for a specified period of time. 7. _____ It is based on the number of periods (n) and the interest rate (i) and whether or not there is more than one cash flow. 8. _____ The interest rate that equates a future value of an annuity to a given present value.

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Companies have relied on external funding because of the following reason: (2 points) A) reaction to the economy. B) need for expansion. C) change in cost of capital. D) all of the above. The major supplier of funds for investment in the whole economy is: (2 points) A) businesses. B) households. C) government. D) financial institutions. Match the following with the items below: (2 points each/22 total) a. brokers b. dealers c. NASDAQ National Market d. three-sector economy e. NASDAQ Small-Cap Market f. efficient market hypothesis g. Securities Act of 1933 h. Securities Act Amendments of 1975 i. Securities Exchange Act of 1934 j. New York Stock Exchange (NYSE) k. National Association of Securities Dealers (NASD) 1. _____ The economy consisting of business, government, and households. Businesses and government are the major users of funds while households are the major suppliers. 2. _____ Are members of organized stock exchanges. 3. _____ Set up the Securities and Exchange Commission to supervise and regulate the securities markets. 4. _____ It requires detailed financial disclosures before securities may be sold to the public. 5. _____ Mandates a national securities market. 6. _____ Composed of large nationwide companies that are traded in over-the-counter markets. 7. _____ Composed of smaller regionally based companies that are traded over-the-counter. 8. _____ The largest volume exchange in the world. 9. _____ Transact security trades over-the-counter from their own inventory of stocks and bonds. 10. _____ Theory or school of thought that says security prices reflect current information and that new information is rapidly reflected in market prices. 11. _____ An industry group that supervises the over-the-counter market.

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Which of the following is not one of the components that makes up the required rate of return on a bond? (2 points) A) risk premium B) real rate of return C) inflation premium D) maturity payment Valuation of financial assets requires knowledge of: (2 points) A) future cash flows. B) appropriate discount rate. C) past asset performance. D) a and b

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The relationship between a bond's price and the yield to maturity: (2 points) A) changes at a constant level for each percentage change of yield to maturity. B) is an inverse relationship. C) is a linear relationship. D) a and b.

10. . If the inflation premium for a bond goes up, the price of the bond: (2 points) A) is unaffected. B) goes down. C) goes up. D) need more information. 11. What price would you expect to pay for a stock with 13% required rate of return, 4% rate of dividend growth, and an annual dividend of $2.50 which will be paid tomorrow? (2 points) A) $27.78 B) $30.28 C) $31.10 D) $31.39 Which of the following would not be included among the costs of carrying inventory? (2 points) A) Obsolescence B) Opportunity cost of capital C) Raw material cost D) Risk of pilferage The future value of a dollar: (2 points) 1. increases with lower interest rates 2. increases with higher interest rates 3. increases with longer periods of time 4. decreases with longer periods of time A) B) C) D) 14. 1 and 3 2 and 3 1 and 4 2 and 4

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You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond? (10 points) Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years? (10 points) You are offered two jobs. One initially pays $100,000 annually, and your salary will grow annually at 11.5%. The other pays pays $97,000 annually, but your salary will grow at 12%. After ten years, which job pays the higher salary? (10 points) (Show work!!)

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A firm has the following investment alternatives: (10 points) Cash Inflows Year A B C_______ 1 $500 $ 0 $ 0 2 500 400 0 3 500 800 0 4 600 900 1,900 Which investment should be considered due to it having the greatest present value? Show work for partial credit. Use a 10.5% discount rate. (Since a discount rate is given, this is a hint as to the correct time value of money function to use - be sure to show your work for credit)