University of New Haven

FINC 2213

Quiz 2 (chap 5)

1)A company's 2016 sales were $75 million. If sales grow at 7% per year, how large will they be 8 years later, in 2024, in millions?

2. Suppose a U.S. government bond promises to pay $3,125 three years from now. If the going interest rate on 3- year government bonds is 4.25%, how much is the bond worth today?

3. Sims Inc. earned $1.25 per share in 2000. Five years later, in 2005, it earned $2.31. What was the growth rate in Sims' earnings per share (EPS) over the 5-year period?

4. Addico Corp's 2005 earnings per share were $2.37, and its growth rate during the prior 5 years was 8.56% per year. If that growth rate were maintained, how long would it take for Addico's EPS to double?

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5. You just won the state lottery. The state gives you the choice of $1,000,000 today or a 20-year annuity of

$80,000, with the first payment coming one year from today. What rate of return is built into the annuity?

6. An investment promises the following cash flow stream: $1,000 at Time 0; $2,500 at the end of Year 1 (or at T=1); $3,500 at the end of Year 2; and $4,000 at the end of Year 3. At a discount rate of 6%, what is the present value of the cash flow stream?

7. Credit card issuers must by law print their Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 17%, with interest paid monthly, what is the EFF% on the card?

8. If a bank pays a 4% nominal rate, with monthly compounding, on deposits, what effective annual rate does the bank pay?