Question

On 30 September 2012, Frank borrowed money from his parents. He promised that he would repay the money on 30 September 2018, with interest at a nominal interest rate of 8% p.a., compounding quarterly. The total amount that he was due to pay his parents at that time was exactly $11,000 but he started his studies at university so he couldn’t afford to repay the loan. If interest continues to accrue, what amount must Frank pay on 30 September 2021 to fully pay off the loan?

Select one:

a. $13,856.83

b. $13,950.66

c. $14,524.87

d. $14,587.44

Which of the following describes the need for capital budgeting?

Select one:

a. A company’s resources are limited so that it will only choose between those projects that will deliver the highest wealth increase for the company.

b. The company is aware of environmental issues and will only allocate to projects that are sustainable and for the good of the environment.

c. The company should allocate to funds only to projects that produce a positive NPV as that will look good on any prospectus for potential new investors.

d. The management of the company is against spending on projects at this time.

Which list indicates the correct priority of payment of long-term of interest or dividends from corporate financial instruments, from highest to lowest?

Select one:

a. Corporate bonds, ordinary shares, preference shares.

b. Corporate bonds, preference shares, ordinary shares.

c. Preference shares, corporate bonds, ordinary shares.

d. Ordinary shares, preference shares, corporate bonds.

Complete the following statement: …………….. is the variability of the return of stocks or portfolio not explained by general market movements?

Select one:

a. total risk

b. standard deviation

c. unsystematic risk

d. systematic risk

A project needs an initial outlay of $3000 for equipment and will net a cash flow of $300 for the next 12 years. At the end of the 12th year, there is a Salvage Value of $1000 for the equipment. What is the NPV of the project if the cost of capital is 12% p.a. effective (to the nearest dollar)?

Select one:

a. $2115

b. $1600

c. -$885

d. -$915

In a typical underwriting arrangement

Select one:

a. the underwriter agrees to sell shares to customers at a market price.

b. the company bears the risk that an IPO will be overpriced.

c. the underwriter bears the risk that the IPO will be under-subscribed.

d. the underwriter agrees to compensate the company for under-pricing.

Answer 1

Hi, As per the HOMEWORKLIB RULES, in case of multiple questions, I need to solve the first question.

The amount is computed as shown below:

Future value = Present value (1 + r)n

= $ 11,000 x (1 + 0.08 / 4) 4 x (2021 - 2018) (Since the interest is compounded quarterly, hence r is divided and n is multiplied b y 4)

= $ 11,000 x (1.02)12

= 13,950.66 Approximately

So, the correct answer is option b.

Feel free to ask in case of any query relating to this question