__Question 1:__** The Time Value of Money (Chapter 5) Twenty Points**

**Multiple Choice Questions**

(1). What is the future value of $10,000 on deposit for 5 years at 6% simple interest?

A. $7,472.58

B. $10,303.62

C. $13,000.00

D. $13,382.26

(2). What is the present value of your trust fund if it promises to pay you $50,000 on your 30^{th} birthday (7 years from today) and earns 10% compounded annually?

A. $25,000.00

B. $25,657.91

C. $28,223.70

D. $29,411.76

(3). You will be receiving cash flows of: $1,000 today, $2,000 at end of year 1, $4,000 at end of year 3, and $6,000 at end of year 5. What is the present value of these cash flows at an interest rate of 7%?

- $9,731.13
- $10,412.27
- $10,524.08
- $11,524.91

(4). If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with monthly payments of $965.55, how much interest is paid over the life of the loan?

A. $120,000

B. $162,000

C. $181,458

D. $227,598

__Question 2:__** Bonds (Chapter 6) Fifteen Points**

What happens to the price of a 3-year bond (with par value $1,000) with an 8% coupon when interest rates change from 8 to 6%?

__Question 3:__** Stocks (Chapter 7) Twenty Points**

(1). Explain why the market value of common stock often differs from its liquidation value or its book value.

(2). A stock offers an expected dividend this year of $3.50, has a required return of 14%, and has historically exhibited a growth rate of 6%. Its current price is $35.00, should the investor purchase this stock? Why?