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Finance 1 Basic Questions

This document provides a 10 question assignment on introductory business finance. It covers topics such as the benefits of different business structures, agency problems, financial markets and instruments, time value of money calculations, and multi-period savings and investment problems. Students are instructed to show all work and cite any sources used. Plagiarism and cheating are strictly prohibited, and assignments violating academic integrity policies will receive a zero.

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Shafkat Reza
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102 views4 pages

Finance 1 Basic Questions

This document provides a 10 question assignment on introductory business finance. It covers topics such as the benefits of different business structures, agency problems, financial markets and instruments, time value of money calculations, and multi-period savings and investment problems. Students are instructed to show all work and cite any sources used. Plagiarism and cheating are strictly prohibited, and assignments violating academic integrity policies will receive a zero.

Uploaded by

Shafkat Reza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FINA2360.

2 Introductory Business Finance


DECLARATION COVER SHEET FOR ASSIGNMENTS
NAME:
STUDENT NUMBER:
SECTION:

PROFESSOR:

ASSIGNMENT NUMBER:

It is the students responsibility to have a reasonable level of maturity and self-discipline. There
may be times where there may be pressure to obtain high grades through dishonest means cheating or
plagiarism. The integrity of the University and the degrees are compromised by such activities and such
acts are not tolerated under any circumstances. The University will undertake appropriate disciplinary
action. Saint Marys University Calendar, Academic Regulation 19 section a.
Plagiarism is the presentation of words, ideas or techniques of another as ones own. Reference to or
appropriation of anothers work by direct quotation or paraphrase must be acknowledged by proper
citation. . The above definition of plagiarism is not restricted to literary works and applies to all forms
of information or ideas that belong to another (e.g. computer programs, mathematical solutions, scientific
experiments, graphical images or data). Saint Marys University Calendar, Academic Regulation 19
section b.
Cheating is the attempt to secure a grade by unethical means. Knowingly assisting someone to cheat is
itself cheating. Cheating would include such practices as:
(i)
arranging for someone to impersonate oneself at an examination or the impersonation of
another at an examination;
(ii)
requesting, providing or accepting unauthorized assistance on a test;
(iii)
possession of unauthorized materials at a test;
(iv)
unauthorized procurement of a copy of an exam.
Anybody observed committing one of the above offenses is presumed guilty of cheating unless the
student can establish his/her innocence. Saint Marys University Calendar, Academic Regulation 19
section c.
A mark of zero will be assigned any assignment that violates any of the above.
The student affirms that
This assignment is of my own work.
I have acknowledged source material through proper citations or references
Signature:

Date:
Assignments submitted without this cover sheet will receive a mark of 0

SAINT MARYS UNIVERSITY

FINA 2360 Winter 2014


Assignment #1
Due: Friday, January 24, 2014 at 12:00 p.m. (Noon)
Total Value 50 marks

Problem #1 (4 marks)
Explain why large and growing firms tend to choose the corporate form of
organization?
Problem #2 (5 marks)
Ted formed a general partnership two years ago with 3 friends. Ted and each
partner invested $250,000 each. The partnership has grown over the past 2
years and the partnership recently borrowed $1,000,000 from the bank to fund
an acquisition.

The acquisition was a disaster and the partnership is now

unable to meet its interest commitments and is on the verge of bankruptcy.


There are no other debts. What is the maximum potential loss Ted could face if
the company declares bankruptcy? Explain. How would your answer change if
the company was a corporation instead of a general partnership?
Problem #3 (4 marks)
What measures can be taken to help mitigate the agency problem?
Problem #4 (4 marks)
What are some examples of financial intermediaries and what is the role of a
financial intermediary?
Problem #5 (4 marks)
How is a primary market different from a secondary market?
Problem #6 (3 marks)
Assume Toyota Corporation has guaranteed the price of a new Prius will always
be $20,000, and youd like to buy one but currently have only $7,752. How
many years will it take your initial investment of $7,752 to grow to $20,000 if it
is invested so that it earns 9% compounded annually?
Problem #7 (6 marks)

You are hoping to buy a house in the future and recently received an
inheritance of $20,000, which you plan to use as a down payment.
a) How long will it take for your money to grow to $30,000 if you invest it in an
account that pays interest at 3% compounded annually?
b) How long will it take for your money to grow to $30,000 if you move it into an
account that pays interest at 11% compounded annually?
c) What does this tell you about the relationship among interest rates, time and
future sums?

Problem #8 (4 marks)
You are considering investing in a security that will pay you $1,000 in 30 years.
a) If the appropriate discount rate is 10%, what is the present value of this
investment?
b) Assume these investments sell for $365, in return for which you receive
$1,000 in 30 years; what is the rate of return investors earn on this investment
if they buy it for $365?

Problem #9 (8 marks)
Twin sisters Ellie and Brigid each received $10,000 cash on their 20 th birthday.
The sisters each planned to invest the funds and use the proceeds as a down
payment on a house in 8 years. Ellie couldnt resist buying some new clothes
for $4,000. Brigid invested the full $10,000 into an account earning 5%
compounded annually.

Ellie invested her remaining funds into an account

earning 5% compounded annually as well.


a) How much more did Brigid have at the end of 8 years?
b) At what annual rate of interest would Ellie have had to earn on her
investment in order to achieve the same future value as Brigid.

Problem #10 (8 marks)


Ben is saving to go on a South Pacific cruise four years from today. The trip will
cost $10,000. To fund the trip he has decided to put his annual bonus into an
account that will earn 6% interest compounded annually. According to his

calculations his first bonus (to be received at the end of the year) will be
$1,000. His second bonus (to be received 2 years from today) will be $2,000
and his third bonus (3 years from today) will be $3,000.
a) How much will Ben have saved by the end of year 4?
b) How much will he need to deposit TODAY in order to have enough for the
trip?

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