Finance and Economic Questions In Tutorial Library

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TITLE: Finance and Economic Questions



Chapter 2

2.1    What roles do GAAP, the FASB, and the PCAOB play in the financial

reporting activities of public companies?

2.2     Describe the purpose of each of the four major financial statements.

Chapter 4

4.23     You plan to retire in exactly 20 years. Your goal is to

create a fund that will allow you to receive $20,000 at the end of each year for

the 30 years between retirement and death (a psychic told you would die exactly

30 years after you retire). You know that you will be able to earn 11% per year

during the 30-year retirement period.

a. How large a fund will you need when you retire in 20 years to provide the

30-year, $20,000 retirement annuity?

b. How much will you need today as a single amount to provide the fund calculated

in part a if you earn only 9% per year during the 20 years preceding


c. What effect would an increase in the rate you can earn both during and prior

to retirement have on the values found in parts a and b? Explain.

4.32     As part of your personal budgeting process, you

have determined that in each of the next 5 years you will have budget shortfalls.

In other words, you will need the amounts shown in the following table at the

end of the given year to balance your budget—that is, to make inflows equal

outflows. You expect to be able to earn 8% on your investments during the

next 5 years and wish to fund the budget shortfalls over the next 5 years with

a single amount.

a. How large must the single deposit today into an account paying 8% annual

interest be to provide for full coverage of the anticipated budget shortfalls?

b. What effect would an increase in your earnings rate have on the amount

calculated in part a? Explain.

End of year           Budget shortfall

1                            $ 5,000

2                               4,000

3                               6,000

4                              10,000

5                               3,000

4.46     Joan Messineo borrowed $15,000 at a 14%

annual rate of interest to be repaid over 3 years. The loan is amortized into

three equal, annual, end-of-year payments.

a. Calculate the annual, end-of-year loan payment.

b. Prepare a loan amortization schedule showing the interest and principal

breakdown of each of the three loan payments.

c. Explain why the interest portion of each payment declines with the passage of time

4.48     Tim Smith is shopping for a used car. He has found

one priced at $4,500. The dealer has told Tim that if he can come up with a

down payment of $500, the dealer will finance the balance of the price at a 12%

annual rate over 2 years (24 months).

a. Assuming that Tim accepts the dealer’s offer, what will his monthly (end-ofmonth)

payment amount be?

b. Use a financial calculator or Equation 4.15a (found in footnote 9) to help

you figure out what Tim’s monthly payment would be if the dealer were

willing to finance the balance of the car price at a 9% annual rate.

Chapter 5

5.3     Compare the following risk preferences: (a) risk-averse, (b) risk-indifferent,

and (c) risk-seeking. Which is most common among financial managers?

5.4     Explain how the range is used in sensitivity analysis

5.13     Explain the meaning of each variable in the capital asset pricing model

(CAPM) equation. What is the security market line (SML)?

Chapter 6

6.15     Define and specify the general equation for the value of any asset, V0.

Chapter 7

7.6     What claims do preferred stockholders have with respect to distribution

of earnings (dividends) and assets?

Chapter 10

10.4     Briefly explain how the following items affect the capital budgeting decisions

of multinational companies: (a) exchange rate risk; (b) political risk;

(c) tax law differences; (d) transfer pricing; and (e) a strategic rather than

a strict financial viewpoint.

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1. Finance
2. Financial Management
3. Corporate Finance
4. Investment and Portfolio Management
5. Business Economics
6. Economics
7. Microeconomics
8. Macroeconomics

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