BRAC Business School

BBA Program, Spring- 2018

FINANCIAL MANAGEMENT (FIN 301)
Section- 1

Midterm Examination-(Marks 20) Duration of exam: 75 Minutes

Instructions:

 NO EXTRA PAGE WILL BE GIVEN

 Make sure you answer all two questions (part A)
 Students are not allowed to leave classroom during exam.

Part A
Answer all two questions(7.5×2=15):

1.
I. What is the value of a 10-year, $1,000 par value bond with a 10 percent annual coupon if its
Yield to maturity is 10 percent?
II. What would be the value of the bond appeared in part I if, just after it had been issued, the
expected inflation rate rose by 3 percentage points, causing investors to require a 13 percent
Yield to maturity? Would we now have a discount or a premium bond?
III. Marian Kirk wishes to select the better of two 10-year annuities, C and D. Annuity C is
with a payment of $2,500 at the end of each year for 10 years. Annuity D is with a payment
of $2,200 at the beginning of each year for 10 years. The opening balance of both annuities
is $30,000. Find the future value of both annuities at the end of year 10, assuming that
Marian can earn 10% annual interest. explain which annuity is more attractive.

IV. Solve for the unknown interest rate in each of the following:
Present value ($) years Interest Rate Future value($)
240 2 297
39,000 15 185,382
2.
I. Rudy Sandberg has two bond options -a 8-year bonds that are currently priced at $868.43.
These bonds have a coupon rate of 6 percent and make semiannual coupon payments.
Second option is another 8-year bonds that pay a coupon rate of 6.6 percent and make
coupon payments annually and are currently being sold at $914.89, Find current yield,
nominal yield and yield to maturity for the both bonds. Which bond Rudy should buy?

II. While Sabera was a student at the Clemson University, she borrowed $45000 at an annual
interest rate of 5%.
Prepare an amortization table for Sabera for 2 years if interest is paid semi-annually.

Part B
Short Questions( Answer any 2 out of 3): (2.5+2.5=10)

1. What is over the counter market? How it works?

2. What should be the goal of the corporation?

3. What affect bond price? discuss briefly.

 Formula

Face value of Loan

PMT = −n
1−(1+r )
r

Coupon payment/face value

Coupon payment/ Market price of the bond