FIN 331-2 – Fall 2008 – EXAM 1 1 NAME: _________________________________________________ PART I: Conceptual/Multiple Choice – 40 questions-1/2 point each = 20 points 1. The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize its expected total corporate income. b. Maximize its expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share over the long run, which is the stock’s intrinsic value. e. Maximize the stock price on a specific target date. 2. The value of an investment after one or more periods of time is called the: a. simple value. b. present value. c. discounted value. d. future value. e. interest on interest value. 3. The process of accumulating interest in an investment over time to earn more Interest is called: a. discounting. b. compounding. c. complexing. d. multiplying. e. indexing. 4. All else constant, the present value will __________ as the period of time decreases, given an interest rate greater than zero. a. remain constant b. decrease c. increase d. either remain constant or decrease e. either remain constant or increase 5. The relationship between the present value and the interest rate is best described as: a. direct. b. inverse. c. unrelated. d. uncorrelated. e. vertical.
FIN 331-2 – Fall 2008 – EXAM 1 2 6. An annuity for which the cash flows occur at the beginning of each time period is called a(n): a. ordinary annuity. b. beginning annuity. c. annuity due. d. perpetuity. e. perpetuity due. 7. The effective annual rate is defined as the interest rate that is: a. compounded at regular intervals throughout the year. b. equal to a monthly rate multiplied by twelve. c. computed by multiplying the rate per period by the number of periods per year. d. expressed as if it were compounded once per year. e. compounded only once over a multi-year period. 8. You are analyzing the value of an investment by calculating the present value of its expected cash flows….