MS Finance Skills Assessment- Finance

Finance Skills Assessment

Congratulations on being accepted into the MSF program! As you get ready to embark on this exciting journey, we kindly request your participation in this survey/quiz. It will assist in assessing your current understanding of the subject matter and aid you in making informed decisions when selecting your courses.

If you have any questions about your score, please contact Karla Lucht @ msf-advising@business.illinois.edu

First and Last (Family) Name *

UIN *

Additional instructions for the previous question. Your UIN is your University ID Number. This is listed on your admission letter from the Graduate College.

UIUC Email Address *

Suppose you just won the state lottery, and you have a choice between receiving $2,075,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
Note: For this question please round to the 2nd digit after the decimal place, that is, 12.6254% should be rounded to 12.63%.

11.10%

10.38%

12.14%

9.44%

11.83%

What is the future value at year 3 of the below set of cash flows if the appropriate discount rate is 11%?

863.57

806.82

616.82

843.57

Additional instructions for the previous question.

Year	0	1	2	3
Cash Flow	$100	$150	$200	$300

Which zero-coupon bond (i.e., bond that does not pay any interest or coupons before it matures) will have a price that is more sensitive to a change in interest rates?

1-year bond

5-year bond

10-year bond

20-year bond

All of these bonds have the same sensitivity to interest rates

Ryngaert Inc. recently issued annual paying non-callable bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 5.7%. If the current market interest rate is 9.7%, at what prices should the bond sell?

$725

$524.76

$690.48

$835.47

Important Information about the next question.

A B

Required Return 10% 12%

Market Price	$25	$40
Expected Growth	7%	9%

See above table. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is correct?

These two stocks should have the same expected return

These two stocks must have the same dividend yield

These two stocks must have the same capital gains yield

These two stocks must have the same expected year-end dividend

Important Information about the next question.

Stock	Amount	Beta
1	$400,000	1.50
2	$600,000	0.50
3	$1,000,000	1.25
4	$2,000,000	0.75

Assume that you are the portfolio manager of the Delaware Fund, a $4 million mutual fund that contains the above stocks.

The required rate of return in the market is 14% and the risk free rate is 6%. What rate of return should investors expect (and require) on their investment in this fund?

12.70%

10.90%

11.50%

13.30%

Suppose you have a portfolio of two assets and each asset has a positive weight in the portfolio. If the correlation between the two assets decreases, what should happen to the standard deviation of portfolio returns?

increases

stays the same

decreases

impossible to determine

What should happen to the price of an at-the-money put option on a firm’s stock if the volatility of the firm’s stock returns increases?

increases

stays the same

decreases

impossible to determine

Project A has a larger NPV than Project B but a smaller IRR. Which of the following best explains why we observe this?

IRR does not consider all of the cash flows

IRR ignores the time value of money

The cash flows in Project A are much larger at each period

IRR does not ignore sunk costs

The project is highly leveraged

To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's:

cost of equity.

pre-tax cost of debt.

aftertax cost of debt.

weighted-average cost of capital.

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