MUHAMMAD MUKARRAM

M.COM-II (Night)
NATIONALUNIVERSITY OF MODERN LANGUAGES
Department of Management Sciences
Lahore Campus
MBA - II (Night) Mid Term Exams November 2013
Paper: Financial Management
Total marks : 20
Objective Paper
Time allowed: 90 Minutes
Instructions
There are 40 multiple-choice questions in this booklet. Try to answer all questions. Do
not spend too much time on any one question
Always choose the best answer. Mark only one answer for each question.
No Cutting/Overwriting is allowed
Subjective paper will be given after the submission of this paper. Anyone can take
subjective paper by submitting this objective paper.

1. Thirty years ago, your father invested $11,000. Today, that investment is worth $287,047. What
is the average annual rate of return your father earned on his investment?

11.14 percent

11.38 percent

11.27 percent

11.49 percent

12.07 percent

ARR = (Fv / Pv)1/30 -1

ARR = ($287,047 / $11,000)1/30 -1
ARR = ($26.09518)1/30 -1
ARR = 1.1148 -1
ARR = 0.11485 or 11.485%
2. On your thirteenth birthday, you received $1,000 which you invested at 6.5 percent interest,
compounded annually. Your investment is now worth $5,476. How old are you today?

Age 29

Age 35

Age 32

Age 37
FV = PV (1 + i)27
FV = $1,000 (1 + 0.065)27

Age 40

FV = $1,000 (5.476)
FV = $5,476/- (So the age is 40)
3. Some time ago, Richard purchased five acres of land costing $123,400. Today, that land
is valued at $189,700. How long has he owned this land if the price of land has been
increasing at 5.5 percent per year?
6.01 years

7.42 years

8.67years

6.98 years
8.03 years
4. As the discount rate increases, the present value of $2,000 to be received four years
from now:
5.
Remains constant

Becomes negative

Also increases

Will vary but the direction of the

change is unknown

Decreases

6. Kate invests $3,000 at 9 percent when she is 20 years old. Kurt invests $3,000 at 9
percent when he is 35 years old. Both investments compound interest annually. Both
Kate and Kurt retire at age 60. Which one of the following statements is correct?
Kate will have less money when she retires than Kurt
Kurt will earn more interest on interest than Kate
Kurt will earn more compound interest than Kate
If Kurt waits to age 70 to retire, then he will have just as much money as Kate
Kate will have more money when she retires than Kurt

Kate & Kurt invested the same amount at same interest rate.
The 5th Answer is correct; because
Kate invested the amount for 40 years and Kurt invested the amount
for 25
years.
So, the Kate will have more money when she retires than Kurt

7. Frank invests $2,500 in an account that pays 6 percent simple interest. How much
money will he have at the end of four years?
$2,650

$3,163

$3,100

$10,600

$3,156
8.
9.
10.
11.
12.
13.
14.
15.

FV = PV (1 + i)04
FV = $2,500 (1 + 0.06)04
FV = $2,500 (1.262476)
FV = $3,156

16.
17. One year ago, you invested $2,500. Today it is worth $2,789.50. What rate of interest did
you earn?
8.67 percent

11.42 percent

9.89 percent

11.58 Percent

10.67 percent
18.
19.
ARR = (Fv / Pv)1/30 -1
20.
21.
ARR = ($2,789.50 / $2,500)1/1 -1
22.
23.
ARR = ($1.1158)1/1 -1
24.
25.
ARR = 1.1158 -1
26.
27.
ARR = 0.1158 or 11.58%
28.
29. Managerial finance
Involves tasks such as budgeting,
financial
forecasting,
cash
management,
and
funds
procurement

Recognizes funds on an accrual

basis

Involves the design and delivery

of advice and financial products
30. The treasurer is commonly responsible for
3

Devotes the majority of its

attention to the collection and
presentation of financial data

Taxes

Making capital expenditures

Data processing
Cost accounting.
31. Making capital expenditure decisions, and managing cash, credit, the pension fund, and
foreign exchange is
Treasurer

Foreign exchange manager

Controller
None of the above
32. The officer responsible for the firms accounting activities, such as corporate
accounting, tax management, financial accounting, and cost accounting is the
Treasurer

Foreign exchange manager

Controller
33. The primary goal of the financial manager is
Minimizing risk

None of the above

Maximizing wealth

Maximizing profit
Minimizing return
34. Profit maximization as the goal of the firm is NOT ideal because
Profits are
measures

only

accounting

Profit maximization does not

consider risk

Cash
flows
are
more
Profits today are less desirable
representative
of
financial
than profits earned in future years
strength
35. Profit maximization fails because it ignores all EXCEPT
The timing of returns

Cashflows
stockholders

Earnings per share

available

to

Risk
36. A financial manager must choose between four alternative investments, 1, 2, 3, and 4.
Each asset costs $35,000 and is expected to provide earnings over a three-year period as
described below.

37. Asset
41. 1 42.

38. Year1
$21,000

45.

46.

9,000

49.

50.

3,000

53.

54.

6,000

57.

39. Year2
43.
$15,
000
47.
15,0
00
51.
20,0
00
55.
12,0
00

40. Year3
44.
$6,
000
48.
21,
000
52.
19,
000
56.
12,
000

Basedontheprofitmaximizationgoal,thefinancialmanagerwouldchoose

Asset 1

Asset 3

Asset 2

Asset 4

58.
59.
63. Asset -1
67.
71.
15,000.00
75.
6,000.00
79.
83.
87. Asset-2
91.
95.
15,000.00
99.
21,000.00
103.
107.
111. Asset-3
115.
119.
20,000.00
123.
19,000.00
127.
131.
135. Asset-4
139.

60. Earnings

61. Interest

62. Total

64.
68.

21,000.00

65.
69.

2,100.00

66.
70.

23,100.00

72.

38,100.00

73.

3,810.00

74.

41,910.00

76.
80.
84.
88.
92.

47,910.00

4,791.00

117,711.00

900.00

78.
82.
86.
90.
94.

52,701.00

9,000.00

77.
81.
85.
89.
93.

96.

24,900.00

97.

2,490.00

98.

27,390.00

100.
104.
108.
112.
116.

48,390.00

4,839.00

3,000.00

101.
105.
109.
113.
117.

120.

23,300.00

124.
128.
132.
136.
140.

44,630.00

6,000.00

9,900.00

53,229.00

300.00

102.
106.
110.
114.
118.

121.

2,330.00

122.

25,630.00

125.
129.
133.
137.
141.

4,463.00

126.
130.
134.
138.
142.

49,093.00

600.00

90,519.00
3,300.00

78,023.00
6,600.00

143.
12,000.00
144.
18,600.00
145.
147.
12,000.00
148.
32,460.00
149.
151.
152.
153.
155.
156.
157.
159.
160.
161. An annuity with an infinite life is called a(n)

1,860.00

146.

20,460.00

3,246.00

150.
154.
158.

35,706.00

Perpetuity

Indefinite

Primia

Deep discount

62,766.00

162. Bill plans to fund his individual retirement account (IRA) with the maximum
contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12
percent on his contributions, how much will he have at the end of the twentieth year?
$19,292

$40,000

$14,938

$144,10

163.
164.
FV = C.F (1/i 1/ i(1+ i)20
165.
FV = $2,000 (8.33 1/ 1.157555171192)
166.
FV = $2,000 (8.33 0.86388970900)
167.
FV = $2,000 (7.46611029099)
168.
FV = $14,938
169.
170.
171. The future value of a $2,000 annuity due deposited at 8 percent compounded
annually for each of the next 10 years is
$28,974

$14,494

$31,292

$13,420

172.
173.
FV = C.F (1/i 1/ i(1+ i)10 x (1+ i)10 x (1+ i)
174.
FV = $2,000 (12.5 1/ 0.25937) x (2.1589) x (1.08)
175.
FV = $2,000 (12.5 5.7899) x (2.1589) x (1.08)
176.
FV = $2,000 (6.7101) x (2.1589) x (1.08)
177.
FV = $31,292
178.
179. The future value of a $10,000 annuity due deposited at 12 percent compounded
annually for each of the next 5 years is
$36,050

$63,530
6

$40,376

$71,154

180.
181.
FV = C.F (1/i 1/ i(1+ i)5 x (1+ i)5 x (1+ i)
182.
FV = $2,000 (8.33 4.7285) x (1.7623) x (1.12)
183.
FV = $2,000 (3.6015) x (1.7623) x (1.12)
184.
FV = $2,000 (7.1154)
185.
FV = $71,154
186.
187.
188. The present value of an ordinary annuity of $350 each year for five years, assuming
an opportunity cost of 4 percent, is
$288

$1,750

$1,896

$1,558

189.
190.
PV = C.F (1/i 1/ i(1+ i)5
191.
PV = $350 (25 1/ 0.048666116096)
192.
PV = $350 (25 20.5481776)
193.
PV = $350 (4.4518223285)
194.
PV = $1,558
195.
196.
197.
198. The present value of an ordinary annuity of $2,350 each year for eight years,
assuming an opportunity cost of 11 percent, is
$ 1,020

$18,800

$27,869

$12,093

199.
200.
201.
PV = C.F (1/i 1/ i(1+ i)8
202.
PV = $2,350 (9.09 1/ 0.25349915)
203.
PV = $2,350 (9.09 3.944786)
204.
PV = $2,350 (5.14521359)
205.
PV = $12,093
206.
207.
208. Mary will receive $12,000 per year for the next 10 years as royalty for her work on a
finance book. What is the present value of her royalty income if the opportunity cost is
12 percent?
$120,000

$ 38,640

$ 67,800

None of the above

7

209.
210.
PV = C.F (1/i 1/ i(1+ i)10
211.
PV = $12,000 (8.33 1/ 0.3727017)
212.
PV = $12,000 (8.33 2.68311)
213.
PV = $12,000 (5.646889)
214.
PV = $67,800
215.
216.
217. To pay for her college education, Gina is saving $2,000 at the beginning of each year
for the next eight years in a bank account paying 12 percent interest. How much will
Gina have in that account at the end of 8th year?
$16,000

$24,600

$17,920

$27,552

218.
219.
FV = C.F (1/i 1/ i(1+ i)8 x (1+ i)8
220.
FV = $2,000 (8.33 1/ 0.29711558) x (2.475963)
221.
FV = $2,000 (8.33 3.365693) x (2.475963)
222.
FV = $2,000 (5.646889) x (2.475963)
223.
FV = $2,000 (13.981488)
224.
FV = $27,552
225.
226.
227. You have been offered a project paying $300 at the beginning of each year for the
next 20 years. What is the maximum amount of money you would invest in this project
if you expect 9 percent rate of return to your investment?
$ 2,738.70

$15,347.70

$ 2,985.18

$ 6,000.00

228.
229.
230.
FV = C.F (1/i 1/ i(1+ i)20 x (1+ i)20
231.
FV = $300 (11.11 1/ 0.50439696) x (5.60441076)
232.
FV = $300 (11.11 1.982565) x (5.60441076)
233.
FV = $300 (9.128545) x (5.60441076)
234.
FV = $300 (51.16011582)
235.
FV = $15,348
236.
237.
238.
239. Find the future value at the end of year 3 of the following stream of cash flows
received at the end of each year, assuming the firm can earn 17 percent on its
investments.

240.

Year

242. 1
244. 2
246. 3

241. A
mo
unt
$3,000
6,000
9,000

$20,724

$23,550

$20,127

$23,350

248.
249.
FV = C.F (1+ i)3
250.
FV = $3,000 (1 .17)3 = 4804.839
251.
FV = C.F (1+ i)3
252.
FV = $6,000 (1 .17)2 = 8213.40
253.
FV = C.F (1+ i)1
254.
FV = $9,000 (1 .17)1 = 10540.00
255.
256.
FV = 23,550
257.
258.
259. Find the future value at the end of year 3 of the following stream of cash flows
received at the end of each year, assuming the firm can earn 8 percent on its
investments.
260. Year
261. A
262. 1
264. 2
266. 3

mo
unt
$10,000
16,000
19,000

$45,000

$47,940

$53,396

$56,690

268.
269.
270.
271.
272.
273.
274.
275.
276.
277.

FV = C.F (1+ i)3

FV = $10,000 (1 .08)3 = 12,597.12
FV = C.F (1+ i)3
FV = $16,000 (1 .08)2 = 18,662.40
FV = C.F (1+ i)1
FV = $19,000 (1 .08)1 = 20520.00
FV = 51,779.52

278. The present value of $1,000 received at the end of year 1, $1,200 received at the end
of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of 7
percent, is
$2,500

$6,516

$3,043
$2,856
279. The present value of $100 received at the end of year 1, $200 received at the end of
year 2, and $300 received at the end of year 3, assuming an opportunity cost of 13
percent, is
$ 453

$1,181

$ 416
$ 500
280. Find the present value of the following stream of cash flows, assuming that the
firms opportunity cost is 14 percent.
281. Year
282. A
283. 1
285. 2
287. 3

mo
unt
$10,000
35,000
24,000

$121,256

$ 60,513

$ 69,000
$ 51,885
289. Find the present value of the following stream of cash flows, assuming that the
firms opportunity cost is 25 percent.

10

290.

Year

292. 1
294. 2
296. 3

291.

A
mo
unt
$5,000
25,000
14,000

$27,168

$34,000

$35,200
$32,500
298. The future value of $200 received today and deposited at 8 percent compounded
semi-annually for three years is
$380

$253

$158

$252

299.
300.
FV= PV (1+i/2)6
301.
302.
FV= $200 (1+.04)6
303.
304.
FV= $200 (1.265319)
305.
306.
FV= $253.06
307.
308.
309. The future value of $100 received today and deposited in an account for four years
paying semiannual interest of 6 percent is
$450

$889

$126

$134

310.
311.
FV= PV (1+i/2)8
312.
313.
FV= $100 (1+.03)8
314.
315.
FV= $100 (1.26677)
316.
317.
FV= $126.67
318.
319.
320. The future value of $200 received today and deposited for three years in an account
which pays semiannual interest of 8 percent is _________.
$253.00

$252.00
11

$158.00

$134.66

321.
322.
FV= PV (1+i/2)6
323.
324.
FV= $200 (1+.04)6
325.
326.
FV= $200 (1.265319)
327.
328.
FV= $253.06
329.
330.
331. The future value of an annuity of $1,000 each year for 10 years, deposited at 12
percent compounded quarterly is
$17,549

$93,049

$75,400

$11,200

332.
333.
PV = C.F (1/i 1/ i(1+ i/4)40 )
334.
PV = $1,000 (33.33 1/ 0.09786113376)
335.
PV = $1,000 (33.33 10.21856136)
336.
PV = $1,000 (23.11477197)
337.
PV = $23,114.77
338.
339.
FV= PV (1+I)40
340.
FV= $23,114.77 (1+.03)40
341.
FV= $23,114.77 (3.262037792)
342.
FV= $75,400
343.
344.
345. Gina has planned to start her college education four years from now. To pay for her
college education, she has decided to save $1,000 a quarter for the next four years in a
bank account paying 12 percent interest. How much will she have at the end of the
fourth year?

346.
347.
348.
349.
350.
351.
352.

$ 1,574

$20,157

$19,116

$16,000
PV = C.F (1/i 1/ i(1+ i/4)16 )
PV = $1,000 (33.33 1/ 0.44814119317)
PV = $1,000 (33.33 20.77223131)
PV = $1,000 (12.56110203)
PV = $12,561.10

12

353.
FV= PV (1+I)16
354.
FV= $12,561.10 (1+.03)16
355.
FV= $12,561.10 (1.604706439)
356.
FV= $20,156.87
357.
358. If a United States Savings bond can be purchased for $29.50 and has a maturity
value at the end of 25 years of $100, what is the annual rate of return on the bond?
5 percent

7 percent

6 percent

8 percent

359.
360.
ARR = (Fv / Pv)1/30 -1
361.
362.
ARR = ($100 / $29.50)1/25 -1
363.
364.
ARR = ($3.3898)1/25 -1
365.
366.
ARR = 1.05000 -1
367.
368.
ARR = 0.0500 or 5%
369.
370.
371. If a United States Savings bond can be purchased for $14.60 and has a maturity
value at the end of 25 years of $100, what is the annual rate of return on the bond?
6 percent

8 percent

7 percent

9 percent

372.
373.
ARR = (Fv / Pv)1/30 -1
374.
375.
ARR = ($100 / $14.60)1/25 -1
376.
377.
ARR = ($6.8493)1/25 -1
378.
379.
ARR = 1.08000 -1
380.
381.
ARR = 0.0800 or 8%
382.
383.
384. Marla borrows $4,500 at 12 percent annually compounded interest to be repaid in
four equal annual installments. The actual end-of-year payment is
$ 942

$1,482

$1,125

$2,641
13

385.
386.
PMT = [rate + rate / (1+rate)n 1] x Principal
387.
388.
PMT = [0.12 + 0.12 / (1.12)4 1] x 4,500
389.
390.
PMT = [0.12 + 0.12 / 0.5735] x 4,500
391.
392.
PMT = [0.12 + 0.2092344363] x 4,500
393.
394.
PMT = 0.3292344363 x 4,500
395.
396.
PMT = 1,481.55
397.
398.
399. Donna makes annual end-of-year payments of $5,043.71 on a four-year loan with an
interest rate of 13 percent. The original principal amount was
$24,462

$ 3,092

$15,000

$20,175

400.
401.
PMT = [rate + rate / (1+rate)n 1] x Principal
402.
403.
5,043.71 = [0.13 + 0.13 / (1.13)4 1] x ?
404.
405.
5,043.71 = [0.13 + 0.13 / 0.63047361] x ?
406.
407.
5,043.71 = [0.13 + 0.2061941974] x ?
408.
409.
5,043.71 = [0.13 + 0.13 / 0.63047361] x ?
410.
411.
5,043.71 = 0.3361941974 x ?
412.
413.
5,043.71 / 0.3361941974 = 15,000
414.
415.
Principal = 15,000/416.
417. Betty borrows $50,000 at 10 percent annually compounded interest to be repaid in
four equal annual installments. The actual end-of-year loan payment is
$10,774
$12,500

14

$14,340
$15,773

PMT = [rate + rate / (1+rate)n 1] x Principal

PMT = [0.10 + 0.10 / (1.10)4 1] x 50,000
PMT = [0.10 + 0.10 / 0.4641] x 50,000
PMT = [0.10 + 0.2154708037] x 50,000
PMT = 0.3154708037 x 50,000
PMT = 15,773.54

15