MSF Assessment Spring 2014

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Dear MSF Student,

Congratulations on your admission to the MSF program. As you prepare to begin the program, we are pleased to offer two pre-session Preparatory Workshops this year to ensure all students have an understanding of key concepts in Finance/Accounting and Math/Statistics. There is no additional charge for these workshops. The two workshops will take place during orientation period. A schedule of orientation activities will be sent separately.

After accepting an offer of admission from the MSF program, all incoming students are asked to take a diagnostic test. The test includes two parts: Part I covers Finance/Accounting concepts; Part II covers Math/Statistics concepts. The purpose of the diagnostic test is to evaluate your prior knowledge of key concepts in these areas. No assigned material is provided for these tests as the goal is for you to demonstrate your knowledge of the material.

If you score 80% or higher on each part, you will not be required to participate in the corresponding workshop.

You are required to attend either or both of these workshops if you score lower than 80% on the tests; not attending will restrict your ability to register for the summer courses.

To take the test, insert your name, email address, and your answers below and then click submit. We would like you to submit your answers by Wednesday, April 30, 2014.

MSF Program

Dear MSF Student,

Congratulations on your admission to the MSF program. As you prepare to begin the program, we are pleased to offer two pre-session Preparatory Workshops this year to ensure all students have an understanding of key concepts in Finance/Accounting and Math/Statistics. There is no additional charge for these workshops. The two workshops will take place during orientation period. A schedule of orientation activities will be sent separately.

After accepting an offer of admission from the MSF program, all incoming students are asked to take a diagnostic test. The test includes two parts: Part I covers Finance/Accounting concepts; Part II covers Math/Statistics concepts. The purpose of the diagnostic test is to evaluate your prior knowledge of key concepts in these areas. No assigned material is provided for these tests as the goal is for you to demonstrate your knowledge of the material.

If you score 80% or higher on each part, you will not be required to participate in the corresponding workshop.

You are required to attend either or both of these workshops if you score lower than 80% on the tests; not attending will restrict your ability to register for the summer courses.

To take the test, insert your name, email address, and your answers below and then click submit. We would like you to submit your answers by Wednesday, April 30, 2014.

MSF Program

 

answer must be an email address

  email rules

Questions for Finance and Accounting

Last year Almazan Software reported $10.50 million of sales, $6.25 million of operating costs other than depreciation, and $1.30 million of depreciation. The company had $5.00 million of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1.00 million. By how much will net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.

required3. Last year Almazan Software reported $10.50 million of sales, $6.25 million of operating costs other than depreciation, and $1.30 million of depreciation. The company had $5.00 million of bonds that carry a 6.5% interest rate, and its federal-plus-state income tax rate was 35%. This year's data are expected to remain unchanged except for one item, depreciation, which is expected to increase by $1.00 million. By how much will net income change as a result of the change in depreciation? The company uses the same depreciation calculations for tax and stockholder reporting purposes.
 
 
 
 
 

<p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;">A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering the legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?</span>

required4.

A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering the legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?

 
 
 
 

What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $2,950 at the end of Year 4 if the interest rate is 5%?

required5. What's the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $2,950 at the end of Year 4 if the interest rate is 5%?
 
 
 
 
 

Which of the following items is NOT an example of an item in the Operating Activities section of the Statement of Cash Flows?

required6. Which of the following items is NOT an example of an item in the Operating Activities section of the Statement of Cash Flows?
 
 
 
 

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.

required7. 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.
 
 
 
 
 

Your father is about to retire, and he wants to buy an annuity that will provide him with $50,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 6%. How much would it cost him to buy the annuity today?

required8. Your father is about to retire, and he wants to buy an annuity that will provide him with $50,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 6%. How much would it cost him to buy the annuity today?
 
 
 
 

What is the future value at year 3 of the following set of cash flows if the appropriate discount rate is 11%?</p> <table width="516" border="0" cellspacing="3" cellpadding="3"> <tr> <th width="101">Year</th> <td width="44" align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0</td> <td width="59" align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1</td> <td width="59" align="center">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2</td> <td width="63" align="center"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3</td> </tr> <tr> <th width="101">Cash Flow</th> <td align="center">$100</td> <td align="center">$150</td> <td align="center">$200</td> <td align="center">$300</td> </tr> </table>

required9. What is the future value at year 3 of the following set of cash flows if the appropriate discount rate is 11%?

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

Ryngaert Inc. recently issued 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?

required10. Ryngaert Inc. recently issued 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?
 
 
 
 

Suppose you borrowed $20,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?

required11. Suppose you borrowed $20,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the first year, after you have made the first payment?
 
 
 
 
 

Your company paid a dividend of $2.00 last year. The growth rate is expected to be 4% for year 1, 5% the next year, 6% for the following year, and then the growth rate is expected to be a constant 7% per year thereafter. The required rate of return is 10%. What is the current stock price?

required12. Your company paid a dividend of $2.00 last year. The growth rate is expected to be 4% for year 1, 5% the next year, 6% for the following year, and then the growth rate is expected to be a constant 7% per year thereafter. The required rate of return is 10%. What is the current stock price?
 
 
 
 

<p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">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?</span></span> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">&nbsp;</span></span> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <span style="text-decoration: underline;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; B&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span></span></span> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">Required Return&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10%&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12%</span></span> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">Market Price&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $25&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; $40</span></span> <p class="MsoNormal" style="margin: 0in 0in 0pt;"><span style="font-size: small;"><span style="font-family: Times New Roman;">Expected Growth&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7%&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 9%</span><br /><br />&nbsp;<br /></span>

required13.

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?

 

                                                A                     B        

Required Return                     10%                12%

Market Price                            $25                  $40

Expected Growth                   7%                   9%

 

 
 
 
 

Assume that you are the portfolio manager of the Delaware Fund, a $4 million mutual fund that contains the following stocks:<br><br><img src="https://business.illinois.edu/msf-test/qnew.gif" alt="Question 14" width="317" height="108" /><br><br>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?

required14. Assume that you are the portfolio manager of the Delaware Fund, a $4 million mutual fund that contains the following stocks:

Question 14

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?
 
 
 
 

One year ago, Bob Sakamano invested $10,400 in 200 shares of Vandalay Industries stock and just received a dividend payment (total) of $600. Today he sold the 200 shares for $54.25 per share. What was his capital gain? And what was his dividend yield?

required15. One year ago, Bob Sakamano invested $10,400 in 200 shares of Vandalay Industries stock and just received a dividend payment (total) of $600. Today he sold the 200 shares for $54.25 per share. What was his capital gain? And what was his dividend yield?
 
 
 
 

XYZ Corporation issued a 10-year bond on 9/1/2005 which pays semi-annual coupons, has a $1,000 par value, and a coupon rate of 7%. Today, the bond has a current yield of 7.25%. What can we say about this bond today?

required16. XYZ Corporation issued a 10-year bond on 9/1/2005 which pays semi-annual coupons, has a $1,000 par value, and a coupon rate of 7%. Today, the bond has a current yield of 7.25%. What can we say about this bond today?
 
 
 
 

Trojan Services' CFO is interested in estimating the company's WACC and has collected the following information: * The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5%. The bonds have a face value of $1,000 and sell in the market today for $920. * The risk free rate is 6%. * The market risk premium is 5%. * The stock's beta is 1.2. * The company's tax rate is 40%. * The company's target capital structure consists of 70% and 30% debt. * The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital. What is Trojan's WACC?

required17. Trojan Services' CFO is interested in estimating the company's WACC and has collected the following information: * The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5%. The bonds have a face value of $1,000 and sell in the market today for $920. * The risk free rate is 6%. * The market risk premium is 5%. * The stock's beta is 1.2. * The company's tax rate is 40%. * The company's target capital structure consists of 70% and 30% debt. * The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital. What is Trojan's WACC?
 
 
 
 

What relationship between 2 assets would we want to have if we wish to reduce the standard deviation of a 2 security portfolio?

required18. What relationship between 2 assets would we want to have if we wish to reduce the standard deviation of a 2 security portfolio?
 
 
 
 

Questions for Math and Statistics

Functions, Linear functions, Equation and slope of a line

What is the slope of the line joining the points (0,9) and (1, 8)

required19. What is the slope of the line joining the points (0,9) and (1, 8)
 
 
 
 
 

Let x denote the temperature degrees in Centigrade and let y denote the temperature in degrees Fahrenheit. We know that x and y are linearly related, that 0 Centigrade or 32 Fahrenheit is the freezing temperature of water and 100 Centigrade or 212 Fahrenheit is the boiling temperature of the water. What is the equation of the linear line relating Centigrade and Fahrenheit?

required20. Let x denote the temperature degrees in Centigrade and let y denote the temperature in degrees Fahrenheit. We know that x and y are linearly related, that 0 Centigrade or 32 Fahrenheit is the freezing temperature of water and 100 Centigrade or 212 Fahrenheit is the boiling temperature of the water. What is the equation of the linear line relating Centigrade and Fahrenheit?
 
 
 
 
 

Unconstrained optimization (maxima and minima)

Which of the following are the maxima and the minima points of the function f(x)=x^4-4x^3+4x^2+4

required21. Which of the following are the maxima and the minima points of the function f(x)=x^4-4x^3+4x^2+4
 
 
 
 
 

Which one of the following is true for the maxima and the minima points?

required22. Which one of the following is true for the maxima and the minima points?
 
 
 
 
 

Derivatives (rules, applications to exponential and logarithmic functions)

<img title="Question 23" src="https://business.illinois.edu/msf-test/q23.gif" alt="" width="514" height="215" /><br /><br />

required23.

 
 
 
 
 

<br /><br /><img src="https://business.illinois.edu/msf-test/q24.gif" alt="question 24" width="514" height="282" />

required24.

question 24
 
 
 
 
 

<img src="https://business.illinois.edu/msf-test/q25.gif" alt="Question 25" width="514" height="270" />

required25. Question 25
 
 
 
 
 

Probability concepts and probability rules, conditional and cumulative probability

Answer the next three questions based on the following information:

A bag contains 120 balls. Out of this 120 balls 30 of them are blue, 50 of them are pink and 40 of them are green. What is the probability that you draw a blue ball out of this bag?

required26. A bag contains 120 balls. Out of this 120 balls 30 of them are blue, 50 of them are pink and 40 of them are green. What is the probability that you draw a blue ball out of this bag?

Answer the next three questions based on the following information:

 
 
 
 
 

Now suppose your friend has drawn a ball and told you that it is pink. He didn't replaced the ball back. What is the conditional probability that the ball you draw to be green?

required27. Now suppose your friend has drawn a ball and told you that it is pink. He didn't replaced the ball back. What is the conditional probability that the ball you draw to be green?
 
 
 
 
 

What is the joint probability that your friend first draws a pink ball(without replacing) and then you draw a green ball?

required28. What is the joint probability that your friend first draws a pink ball(without replacing) and then you draw a green ball?
 
 
 
 
 

Continuous random variables

True/False: If X is a continuous random variable, an individual for X has zero probability. i.e. Pr(X=x)=0

required29. True/False: If X is a continuous random variable, an individual for X has zero probability. i.e. Pr(X=x)=0
 
 

Which of the following is a continuous random variable?

required30. Which of the following is a continuous random variable?
 
 
 
 
 

Moments

Which of the following is NOT a measure of dispersion?

required31. Which of the following is NOT a measure of dispersion?
 
 
 
 

<p class="MsoNormal" style="margin: 0in 0in 0pt; mso-pagination: none; tab-stops: .5in 1.0in 1.5in 2.0in 2.5in 3.0in 3.5in 4.0in 4.5in 5.0in 5.5in 6.0in; mso-layout-grid-align: none;"><span style="font-size: x-small;">Data points for a sample is give as follows:</span> <p class="MsoNormal" style="margin: 0in 0in 0pt; mso-pagination: none; tab-stops: .5in 1.0in 1.5in 2.0in 2.5in 3.0in 3.5in 4.0in 4.5in 5.0in 5.5in 6.0in; mso-layout-grid-align: none;"><span style="font-size: x-small;">10, 12, 17, 14, 18, 5, 8, 25, 48, 45, 18</span> <p class="MsoNormal" style="margin: 0in 0in 0pt; mso-pagination: none; tab-stops: .5in 1.0in 1.5in 2.0in 2.5in 3.0in 3.5in 4.0in 4.5in 5.0in 5.5in 6.0in; mso-layout-grid-align: none;"><span style="font-size: x-small;">&nbsp;</span><br /><br /><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;; mso-fareast-font-family: 'Times New Roman'; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA;"><span style="font-size: x-small;">What are the mean, median and mode values for these data points?</span></span>

required32.

Data points for a sample is give as follows:

10, 12, 17, 14, 18, 5, 8, 25, 48, 45, 18

 

What are the mean, median and mode values for these data points?

 
 
 
 
 

What could be inferred about the distribution of this sample points using the mean and median information?

required33. What could be inferred about the distribution of this sample points using the mean and median information?
 
 
 
 

What is the standard deviation of these data points (round it to two decimal points)?

required34. What is the standard deviation of these data points (round it to two decimal points)?