1. Explain in a few sentences the scenario from start to finish of how a corporate takeover may occur. (5 pts.)

2. Which of the following scenarios is NOT an example of risk management?
   1. A household purchases life insurance in the event of the premature death of the primary breadwinner.
   2. A framer enters into a futures contract for the sale of his wheat in case the price of wheat falls in the future.
   3. A speculator purchases a call option so that he can purchase the underlying stock at the specified price in the event its price goes up.
   4. An investor purchases a put option on a stock he already owns so that he can sell it at the specified price if its price drops.
3. Fill in the blank. Debt instruments can be classified by their time to maturity. The market for instruments maturing in less than one year is called the _____ and the market for long-term debt is called the _______. (2 pts.)
4. An interest rate is a _____________ rate of return.
   1. Variable
   2. Guaranteed
   3. Promised
   4. Risky
5. Name three advantages of separation of ownership and management in corporations: (3 pts.)

6. You buy a stock worth $75. In one year, it pays a dividend of $13.50 and is worth $90 immediately after the dividend is paid. What are the dividend income component, price change component and the total return on the stock after one year? (5 pts.)

7. What is the present value of the following cash flows, assuming an interest rate of 6%?
   1. $1,500 received a year from now. (2 pts.)

2. $3,000 received three years from now. (2 pts.)

3. $4,500 received five years from now. (2 pts.)

8. Answer the following questions relating to perpetuities.
   1. Define a perpetuity (2 pts.)

2. Find the present value of a level perpetuity with a payment of $500 per year and a yearly interest rate of 6%. (3 pts.)

3. Find the present value of a growth perpetuity with a payment of $300 per year, a growth rate of 3%, and an interest rate of 7%. (3 pts.)

9. Answer the following questions:
   1. Define an annuity (2 pts.)

2. Suppose you have an ordinary annuity where you save $3,000 per year for the next 20 years at an annual interest rate of 8%. How much will you have accumulated at the end of those 20 years? (3 pts.)

3. Suppose you have an immediate annuity where you save $5,000 per year for the next 30 years at an annual interest rate of 6%. How much will you have accumulated at the end of those 30 years? (3 pts.)