Fi515 Week 2 Self Quiz

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1. Branch Corp's total assets at the end of last year were $315,000 and its net income after taxes was $22,750. What was its return on total assets? (Points : 6) 7.22% 7.58% 7.96% 8.36% 8.78% 2. Nikko Corp's total common equity at the end of last year was $305,000 and its net income after taxes was $60,000. What was its ROE(Return on Equity)? (Points : 6) 16.87% 17.75% 18.69% 19.67% 20.66% Formula used in Return on Equity calculation is: 3. You have a chance to buy an annuity that pays $1,000 at the end of each year for three years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? (Points : 6) $2,697.93 $2775.79 $2,921.86 $3,075.64 $3,237.52 BEGIN Mode N 3 I/YR 5.5% PMT $1,000 FV $0.00 PV Therefore, to receive $1,000 at the beginning of each year for 3 years at 5.5%, the fair value you should pay is $2,697.93 HP 12C Suppose that you are offered an investment that will pay you $1,000 per year for 10 years. If you can earn a rate of 9% per year on similar investments, how much should you be willing to pay for this annuity? In this case we need to solve for the present value of this annuity since that is the amount that you would be willing to pay today. Press f X><Yto clear the financial keys. Enter the numbers into the appropriate keys: 10 into N, 9 into i, and 1000 (a cash inflow) into PMT. Now press PVto solve for the present value. The answer is -6,417.6577. Again, this is negative because it represents the amount you would have to pay (cash outflow) today to purchase this annuity. 4. How much would $5,000 due in 50 years be worth today if the discount rate was 7.5%?

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