1. Which of the following statements is false?

   		Because a corporation is a separate legal entity, when it fails to repay its debts, the debt holders are entitled to seize the assets of the corporation in compensation for the default.
   		If the corporation fails to satisfy debt holders' claims, debt holders may lose control of the firm.
   		As long as the corporation can satisfy the claims of the debt holders, ownership remains in the hands of the equity holders.
   		In bankruptcy, management must negotiate with debt holders for the opportunity to reorganise the firm and stay in business.

QUESTION 2

1. Which business form has the following characteristics:
   • Separate legal entity
   • Liability of investors limited to amount of investment
   • Allows separation of ownership and day-to-day management
   • Taxed as a separate entity

   		Trust
   		Partnership
   		Corporation
   		Sole Trader

QUESTION 3

1. You have just sold an asset for $8,000 which you purchased one year ago. If you earned a return of 10% p.a., what did the asset cost you?

   		$7,665
   		$8,800
   		$7,200
   		$7,273

QUESTION 4

1. Your Aunt Maggie has been making irregular deposits into a bank account for you. On 1/1/2003 she deposited $450. On 1/1/2005 she deposited $540. On 1/1/2009 she deposited $320. The bank account earns 4% per year. Assuming no withdrawals, how much was in the account on 1/1/2012?

   		$1,711.05
   		$1,310.00
   		$1,779.49
   		$1,645.24

QUESTION 5

1. Jennifer is your oldest child. Tomorrow is her 5th birthday. You plan to set up a savings plan for Jennifer's university education. You will deposit $4,000, tomorrow and every year up to and including her 17th birthday. How much will be available to Jennifer on her 18th birthday? Assume the relevant interest rate is 5.6% per year. Enter your answer to the nearest cent.

QUESTION 6

1. A winning lottery ticket is paying $40 each year indefinitely. If the holder of the ticket is paid at the end of each year and he or she faces a 5% discount rate, what is the present value of their winnings?

   		$1000
   		$840
   		$800
   		$42

QUESTION 7

1. Your are considering purchasing a new home. You will need to borrow $250,000 to purchase the home. A mortgage company offers you a 15-year fixed rate mortgage at 9%p.a. compounding monthly. If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to:

   		$660
   		$2,535
   		$2,585
   		$1,390

QUESTION 8

1. The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to:

   		8.00%
   		8.30%
   		8.66%
   		7.72%

QUESTION 9

1. Which of the following statements is false?

   		The equivalent after-tax interest rate is r(1 - ).
   		The right discount rate for a cash flow is the rate of return available in the market on other investments of comparable risk and term.
   		To compensate for the risk that they will receive less if the firm defaults, investors demand a lower interest rate on corporate bonds than the rate on U.S. Treasuries.
   		The actual cash flow that the investor will get to keep will be reduced by the amount of any tax payments.

QUESTION 10

1. You wish to borrow $347,000 from Budget Bank to buy a home. They are offering a 30 year mortgage with an EAR of 4.6%. Calculate the amount of your monthly payment. Round to the nearest dollar.