1.It is said that finance embraces uncertainty. Without uncertainty, there is no finance. Do you agree? Briefly explain.
2.In your own words, briefly describe agency theory as it applies to corporate finance. Describe the differences between legal and moral- ethical agency problems. Provide an example of each.
3.Briefly outline some of the new risks businesses face in today’s environment. If you were the CEO of a firm in today’s business environment, how would you manage these risks? Explain briefly.
4.If you invest $ 4,600 today, how much would you have in your account 32 years from now if interest rates are 12.2725% per year?
5.You want to receive $ 10 million in 45 years for a major purchase. If a financial institution offers 4.795 % per year, how much should you invest (one time) today to make this happen?
6.You want to save up for retirement in 25 years. Hence you decide that you can afford to save $ 428 per month (at the end of the month), with the first payment to be made at the end of month 1. If the bank offers you 8.475% per year on your investment, how much will you have accumulated at retirement?
7.You are now 25 years old. In 20 years, you hope to be able to buy a small investment property currently worth $ 14,000, but expected to appreciate at the rate of – 1% (minus 1%) per year. You plan to make equal quarterly payments and the bank if offering you 6.45% on your investment. How much should you invest every quarter to be able to purchase the property?
8.You want to buy a house that currently costs $ 250,000. The bank requires 10% down and 20-year mortgage rates are around 2.75%. Ignoring other costs and expenses associated with the house, what would your monthly payments be?
9.You want to buy your dream car. Its sticker price is $ 75,000. The bank is offering you financing at 2.485% for 72 months. If you are required to make a 15% down payment, estimate your monthly payment.
10.Consider the car purchase in the previous question. The price is still $ 75,000. You have decided that you cannot afford this payment. Instead, you prefer leasing the car. Ignoring other considerations with leasing, compute the revised monthly payments. Leasing is slightly more expensive – at 4.05%, and is offered for 48 months. At the end of the lease period, you can buy the car for its residual “blue book” value of $ 32,000, or return the car. Assume you will still need to make a 10% down payment on the car.