FINA 3332

Take Home Exam 1

Instructions:

1. Do Not ask friends/family/classmates for help on the exam. This is a major Honor Code

violation and will result in immediate referral as an honor code violation, this can result in failing

the exam, failing the course, and carries scholarship(economic) impacts.

2. The exam is open book, open note, you may use whatever other resources you need, with the

exception of other people as listed in #1.

3. Use the rounding and formatting rules as specified in the course.

a. Include $ & %

b. Round Percent values to the nearest tenth

c. Round Dollars to the nearest penny

d. Avoid internal rounding to the problem where possible

e. Use ESA (Equation, Substitution, Answer)

f. Show your timeline

4. Submit your Excel spreadsheet and PDF document to blackboard.

I have read and understand these rules and will obey the Honor Code.

Name: ______________________________

Signature: ___________________________

Date: _______________________________

1. Essay Question: What are the core rules to valuing cashflows? What is the problem with

ignoring these rules? What happens when the rules are ignored? Are any of the rules

“unnecessary? What are the implication of the rules on timelines?

2. You have ownership of an annuity that pays $113 per month for the next 42 months and a

perpetuity that pays $831 per month. The monthly discount rate is .83%. How much would you

have to be paid to sell the combined cashflow to someone else?

3. Given an EAR of 9.8%. Value the combined cashflow of receiving $3,839 in 5 years and paying

$2,970 in 225 months.

4. How much is the monthly payment for an auto loan with a down payment of $13,406 and an

APR of 10.5%. The value of the car being purchased is $23,267. The loan term is 5 years.

5. Given a quarterly compounding interest rate of 2.825%. What is the value of the following

annual cashflow stream at year 7?

0 1 2 3 4 5 6 7 8 9

-55 -81 -6 31 14 -98 8 42 -57 16

6. You won the lottery and now have to choose between a $684,876 annuity that lasts for 25 years

and a lump sum payment of $14,050,871 that you would receive next year. Your discount rate

is 10.7% EAR. You can pass the winnings through a S-Corp or a C-corp. The individual tax rate

for gambling winnings is 60%, the corporate tax rate is 35% and the individual capital gains tax

rate is 15%. What is the best combination?

7. You are trying to buy a car and can afford a monthly payment of $532. The bank has offered

you a loan of $31,247 at a APR of 8.4%. They will charge you monthly and the loan term is 5

years. The dealership is charging you $20,500 for the car that you want. How much is your

monthly payment? Can you afford the car that you want?

8. In 20 years you want to have an annuity that pays $31,421 per quarter for 20 years out of your

retirement account. Your monthly salary is $9,264 and you plan to

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