Transfer your answers to the computer sheet.

$21.$ Agency problems can best be characterized as:

A$,$ differing incentives between managers and owners.

B$.$ spending corporate resources.

C$.$ friction between the primary and secondary markets.

D$.$ conflicts within the firm's board of directors.

E$.$ dislike of firm's bondholders by its equity holders.

$22.$ Within the realm of ethical decision making, managers should attempt to maximize:

A$.$ shareholder dividends.

B$.$ the market value of the shareholders' wealth.

C$.$ their compensation plans.

D$.$ the firm's market share.

the profits of the firm.

$23.$ A share of BCE stock is purchased by an individual investor for $$40$ and later sold to another

investor for $$60.$ Who profits from the sale?

A$.$ The first investor

B$.$ The second investor

D$.$ Profit is split between BCE and the first investor,?

E$.$ The two investors split the profit.

Winter $2024$

$5$

FIN$*2000$: Midterm Version B

$24.$ Financial markets are used for trading:

A$.$ collectable coins.

B$.$ both real assets and financial assets.

C$.$ the goods and services produced by a firm.

D$.$ securities$,$ such as shares of Rogers Communications.

E$.$ the raw materials used in manufacturing.

$25.$ Perhaps the best method for estimating the market value of shareholders' equity is to:

A$.$ subtract total liabilities from total assets.

B$.$ read from the firm's statement of financial position.

C$.$ read from the firm's statement of comprehensive income.

D$.$ multiply number of shares outstanding by the price of each share.

E$.$ add the retained earnings plus total liabilities.

$26.$ Who pays the taxes on earnings distributed as dividends?

A$.$ The corporation

B$.$ The investor receiving the dividend

Both the corporation and the investor

The investor's broker

$27.$ How much can be accumulated for retirement if $$2,000$ is deposited annually, beginning

one year from today, and the account earns $9$ percent interest compounded annually for

$40$ years?

$.$ $$802,876\mathrm{.}27$

B$.$ $$736,583\mathrm{.}73$

C$.$ $$675,764\mathrm{.}89$

D$.$ $$62,818\mathrm{.}84$

E$.$ $$21,514\mathrm{.}72$

$28.$ The principal portion of a car loan with equal payments each month:

A$.$ is the same every month.

B$.$ decreases with each payment.

C$.$ increases with each payment.

D$.$ fluctuates each month with changes in market interest rates.

E$.$ is adjusted each year of the loan.

FIN$*2000$: Midterm Version B

$6$

$29.$ Which account would be preferred by a depositor: an $8$ percent APR with monthly

compounding or $8\mathrm{.}5$ percent APR with semi$-$annual compounding?

A$.8\mathrm{.}5$ percent with semi$-$annual compounding

B$.8$ percent with monthly compounding

The depositor would be indifferent between the two

D

The time period must be known to select the preferred account

E$.$ The choice depends on the inflation rate

Winter $2024$

$30.$ Which of the following will decrease the present value of an annuity, other things equal?

A$.$ Decreasing the interest rate

B$.$ Increasing the interest rate

C$.$ Increasing the number of payments

D

Increasing the amount of the payment

Making it an annuity due

$31.$ A furniture store is offering free credit on purchases of over $$1,000.$ You observe that a

plasma TV can be purchased for nothing down and $$4,000$ due in one year. The store next

door offers an identical television for $$3,650,$ but does not offer credit terms. Which

statement below best describes the "free" credit?

A$.$ The "free" credit costs about $21\mathrm{.}67$ percent

$400$

$0$

B$.$ The "free" credit costs about $9\mathrm{.}59$ percent

C The "free" credit costs about $9\mathrm{.}13$ percent

D$.$ The "free" credit costs about $8\mathrm{.}75$ percent

E$.$ The "free" credit effectively costs zero percent

$32.$ What happens over time to the real cost of purchasing a home, if the mortgage payments

are fixed in nominal terms and inflation is in existence?

A$.$ The real cost is constant x

B$.$ The real cost in increasing

The real cost is decreasing

D$.$ The price index must be known to answer this question

E$.$ Whether the real cost is increasing or decreasing depends on the inflation rate

Winter $2024$

$7$

FIN$*2000$: Midterm Version B

$33.$ How much interest can be accumulated during one year on a $$1,000$ deposit paying

continuously compounded interest at an APR of $10$ percent?

A$.$ $$115\mathrm{.}70$

$1000$

B$.$ $$110\mathrm{.}52$

C$.$ $$105\mathrm{.}17$

D$.$ $$100\mathrm{.}00$

E$.$ $$95\mathrm{.}31$

$34.$ When the yield curve is upward$-$sloping, then:

A$.$ The liquidity preference theory cannot hold.

B$.$ Short$-$maturity bonds offer high coupon rates.

C$.$ Long$-$maturity bonds are priced above par value.

D$.$ Short$-$maturity bonds yield less than long$-$maturity bonds.

Long$-$maturity bonds increase in price when interest rates increase.

$35.$ How much should you pay for a $$1,000$ face value bond with a $10$ percent coupon, semiannual payments, and five years to maturity if the interest rate is $8$ percent?

$.$ $$1486\mathrm{.}65$

B$.$ $$1180\mathrm{.}58$

C$.$ $$1081\mathrm{.}11$

$1000$ L$4$D$.5922/18$

E$.$ $$680\mathrm{.}58$

$100$

$2\mathrm{.}5-2\mathrm{.}04$

$546104)5)$

$0\mathrm{.}49$

$+$

$100$

$36.$ Which of the following is correct for a bond currently selling at a premium to par?

A$.$ Its price is expected to increase over time.

Its yield to maturity is higher than its current yield.