BUS785 In Class Work No.

1 First Name_______ Last Name_______

1. One common reason for partners ips to con!ert to a corporate form of or"ani#ation is t at t e partners ip$ %& faces rapi'l( "ro)in" marketin" re*+irements. B& )is es to a!oi' ta,ation of profits. C& as iss+e' all of its partners ips. -& faces rapi'l( "ro)in" capital nee's 2. W ic of t e follo)in" )o+l' .e consi'ere' a capital .+'"etin" 'ecision/ %& 0lannin" to iss+e common stock rat er t an iss+in" preferre' stock B& % 'ecision to e,pan' into a ne) line of pro'+cts1 at a cost of 25 million C& 3ep+rc asin" s ares of common stock -& Iss+in" 'e.t in t e form of lon"4term .on's

5. W ic of t e follo)in" statements is tr+e re"ar'in" t e corporate form of or"ani#ation compare' to t at of t e sole proprietors ip/ %& 6 e o)ners of t e sole proprietors ip a!e limite' lia.ilit( for t e firm7s 'e.ts. B& 6 e sole proprietors ip is t e simplest .+siness form to start4+p. C& 6 e corporation as a limite' life. -& -i!i'en's recei!e' .( t e corporation7s s are ol'ers are ta,4e,empt. 8& It is more 'iffic+lt to transfer o)ners ip in a corporation.
9. 6 e "oal of a financial mana"er is to$ %& :a,imi#e sales B& :a,imi#e profits C& :a,imi#e t e )ealt of .ot .on' ol'ers an' stock ol'ers. -& :a,imi#e t e )ealt of t e s are ol'ers 8& :a,imi#e t e stock price on fiscal (ear en'.

5. W ic of t e follo)in" statements is tr+e/ %& -isco+ntin" means t e proce'+re to fin' f+t+re !al+es. B& On loans )it mont l( compo+n'in"1 t e 8%3 )ill e,cee' t e %0;. C& %ll else t e same1 t e lon"er t e term of a loan t e lo)er )ill .e t e total interest (o+ pa( on it. -& 0resent !al+es an' interest rates <'isco+nt rates& mo!e in t e same 'irection )it one anot er. 8& Compo+n'in" essentiall( means earnin" interest on .ot principal an' past interest.

=. S+ppose a U.S. "o!ernment .on' )ill pa( 211>>> t ree (ears from no). If t e "oin" interest rate on 54(ear "o!ernment .on's is 9?1 o) m+c is t e .on' )ort to'a(/ a. .. c. '. e. 7. 2@95.9= 2@@1.95 288@.>> 2@>7.@1 2@=8.9>

;o+ )ant to "o to "ra' sc ool 9 (ears from no)1 an' (o+ can sa!e 251>>> per (ear1 .e"innin" one (ear from to'a(. ;o+ plan to 'eposit t e f+n's in a m+t+al f+n' ) ic (o+ e,pect to ret+rn @? per (ear. Un'er t ese con'itions1 o) m+c )ill (o+ a!e A+st after (o+ make t e 9t 'eposit1 9 (ears from no)/ a. .. c. '. e. 2BB18=5.=5 2B>11@@.97 2B11515.78 2171@7=.89 21@15@>.5>

8. ;o+ nee' 2915>> to .+( a ne) stereo for (o+r car. If no) (o+ a!e 2118>> to in!est at =? compo+n'e' daily1 o) lon" )ill (o+ a!e to )ait to .+( t e stereo/ %& 15.B8 (ears B& 18.9B (ears C& 8.=> (ears -& 19.58 (ears 8& 15.75 (ears @. W atCs t e present !al+e of a =4(ear or'inar( ann+it( of 211>>> per (ear pl+s an a''itional 2115>> at t e en' of ;ear = if t e interest rate is =?/ a. .. c. '. e. 2515B9.8@ 2515@1.95 251@79.77 2=1>11.87 291859.15

D1> an' D11 ma( .e )orke' +n'er EBFNG mo'e 1>. ;o+r fat er is a.o+t to retire1 an' e )ants to .+( an ann+it( t at )ill pro!i'e im )it 25>1>>> of income a (ear for B> (ears1 )it t e first pa(ment comin" imme'iatel(. 6 e "oin" rate on s+c ann+ities is =?. Ho) m+c )o+l' it cost im to .+( t e ann+it( to'a(/ a. .. c. '. e. 2=>71@>5.8B 291=111>.59 25171515.=8 2=151@7=.89 2988159@.15

11.

;o+r fat er as 25>>1>>> an' )ants to retire. He e,pects to li!e for anot er B> (ears1 an' e also e,pects to earn 8? on is in!este' f+n's. Ho) m+c co+l' e )it 'ra) at t e .e"innin" of eac of t e ne,t B> (ears an' en' +p )it #ero in t e acco+nt/

a. 2551951.85 .. 2971155.8> c. 25917=9.9> '. 2971895.15 e. 295111@.7= <-o not for"et to ret+rn to t e E8N-G mo'e after t is *+estion&

1B.

Ho) m+c )o+l' (o+ pa( for a perpet+it( t at pa(s 28>> per mont ) en interest rate <%03& is 1B? mont l(/ a. .. c. '. e. 28>1>>> 2=1===.== 2@=>1>>> 2==1===.== 2@B1>>>

15.

W atCs t e present !al+e of 291>>> 'isco+nte' .ack 5 (ears if t e appropriate interest rate is 8?1 compo+n'e' mont l(/ a. .. c. '. e. 25119@.>B 2B1@8B.@> 2B1=9@.78 2B1>B5.79 2517>8.B=

19.

Cre'it car' iss+ers m+st .( la) print t eir %nn+al 0ercenta"e 3ate <%03& on t eir mont l( statements. If t e %03 is state' to .e 7.5>? mont l(1 ) at is t e interest rate per mont / a. .. c. '. >.5>5? >.=>8? >.>=>8? >.5>@?

15.W at is t e present !al+e of t e follo)in" cas flo)s at a 'isco+nt rate of 1B?/

t I > 4B 5 > 1> > > t I 1 1 > > 1> > > tI B 1 5 > 1> > > tI 5 B > > 1> > >

%& B& C& -&

21>11BB1 2B>>1>>> 219B1B>8 2155.517

1=.

W ic of t e follo)in" .ank acco+nts as t e i" est effecti!e ann+al ret+rn/ a. .. c. '. e. %n acco+nt t %n acco+nt t %n acco+nt t %n acco+nt t %n acco+nt t at pa(s 5.B? nominal interest )it mont l( compo+n'in". at pa(s 9? nominal interest )it *+arterl( compo+n'in". at pa(s 9.5? nominal interest )it 'ail( compo+n'in". at pa(s 5.9? nominal interest )it ann+al compo+n'in". at pa(s 9.5? nominal interest )it mont l( compo+n'in".

17.

% l+mp s+m pa(ment of 211>>> is '+e at t e en' of 5 (ears. 6 e nominal interest rate is 1>?1 semiann+al compo+n'in". W ic of t e follo)in" statements is CO338C6/ a. 6 e present !al+e of t e 211>>> )o+l' .e "reater if interest )ere compo+n'e' mont l( rat er t an semiann+all(. .. 6 e perio'ic rate is "reater t an 5?. c. 6 e perio'ic interest rate is 5?. '. 6 e present !al+e )o+l' "reater if t e l+mp s+m )ere 'isco+nte' .ack for more perio's. e. 6 e 0J of t e 211>>> l+mp s+m as a i" er present !al+e t an t e 0J of a 54 (ear1 2B>> or'inar( ann+it(.

18.
Whats the future value of a 3-year $100 annuity, if the quoted interest rate is 10% , compounded semiannually
0
5%

1 2 100

2 4 100

3 6 100

!ayments occur annually, "ut compoundin# occurs every $ months.

2-34

%& B& C& -& 8&

21>5K5 258=.79 2511.8> 2551.8> 2555.81

1@. ;o+ are to make ann+al 'eposit of 25>>>L(ear into a retirement acco+nt t at pa(s 11? interest compo+n'e' mont l(. If (o+r first 'eposit )ill .e ma'e one (ear from no)1 o) lar"e )ill (o+r retirement acco+nt .e in 5> (ears. %& 2===198> B& 27591BBB C& 25@71>=5 -& 27>1115> 8& 258>1>B5 B>. % real estate in!estment as t e follo)in" e,pecte' cas flo)s$ ;ear 1 B 5 9 Cas Flo)s 21>1>>> B51>>> > 551>>>

If t e 'isco+nt rate <interest rate& is 8?1 ) at is t e in!estmentCs present !al+e/ a. .. c. '. e. 2=911>7 25=1918 2551==1 28>15>8 2571@>>

B1. %0; is also calle'$ a. .. c. '. e. 8%3 %03 *+ote' rate nominal rate perio'ic rate