FIN 3104

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EAR

(1 + (quoted annual rate / compounding periods per year)^m) - 1

To pay for your​ education, you've taken out ​$26,000 in student loans. If you make monthly payments over 12 years at 6 percent compounded​ monthly, how much are your monthly student loan​ payments? The monthly payment of your student loan is ​$nothing. ​(Round to the nearest​ cent.)

(C/R) (1 - 1/ ((1+R)^N)) 26000 = (C/.005) (1 - 1 / 1.005^144)

An investment is expected to yield​ $300 in three​ years, $500 in five​ years, and​ $300 in seven years. What is the present value of this investment if our opportunity rate is​ 5%?

865

What would you expect the nominal rate of interest to be if the real rate is 4.3 percent and the expected inflation rate is 6.7 ​percent? The nominal rate of interest would be 11.2911.29​%. ​(Round to two decimal​ places.)

1.043*1.067 = 1.11288 - 1 = .11288 move the decimal over two times = 11.29

You have just purchased a share of preferred stock for​ $50.00. The preferred stock pays an annual dividend of​ $5.50 per share forever. What is the rate of return on your​ investment?

11

How much money must you pay into an account at the beginning of each of 20 years in order to have​ $10,000 at the end of the 20th​ year? Assume that the account pays​ 12% per​ annum, and round to the nearest​ $1.

124

What is the present value of an annuity of​ $27 received at the beginning of each year for the next six​ years? The first payment will be received​ today, and the discount rate is​ 10% (round to nearest​ $10).

130

Gina​ Dare, who wants to be a​ millionaire, plans to retire at the end of 40 years.​ Gina's plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate​ $1,000,000? Assume that the account will earn an annual rate of​ 11.5%. Round off to the nearest​ $1.

1497

Your company has received a​ $50,000 loan from an industrial finance company. The annual payments are​ $6,202.70. If the company is paying​ 9% interest per​ year, how many loan payments must the company​ make?

15

Lisa Simpson wants to have ​$1,900,000 in 55 years by making equal annual​ end-of-the-year deposits into a​ tax-deferred account paying 12.00 percent annually. What must​ Lisa's annual deposit​ be? The amount of​ Lisa's annual deposit must be ​$nothing. ​ (Round to the nearest​ cent.)

1900000= P ((1+.12)^55) - 1) / .12 448.5

A friend of yours plans to begin saving for retirement by depositing​ $2,000 at the end of each year for the next 25 years. If she can earn​ 10% annually on her​ investment, how much will she have accumulated at the end of 25​ years?

196692

What is the present value of​ $250 received at the beginning of each year for 21​ years? Assume that the first payment is received today. Use a discount rate of​ 12%, and round your answer to the nearest​ $10. What is the present value of​ $150 received at the beginning of each year for 16​ years? The first payment is received today. Use a discount rate of​ 9%, and round your answer to the nearest​ $10.

2117 1360

You have been depositing money at the end of each year into an account drawing​ 8% interest. What is the balance in the account at the end of year four if you deposited the following​ amounts? Year End of Year Deposit 1 ​$350 2 ​$500 3 ​$725 4 ​$400 What is the present value of the following uneven stream of cash​ flows? Assume a​ 6% discount rate and end−of−period payments. Round to the nearest whole dollar. Year Cash Flow 1 ​$3,000 2 ​$4,000 3 ​$5,000

2207 10588

You are thinking of buying a miniature golf course. It is expected to generate cash flows of​ $40,000 per year in years one through four and​ $50,000 per year in years five through eight. If the appropriate discount rate is​ 10%, what is the present value of these cash​ flows?

235048

Recently you borrowed money for a new car. The loan amount is​ $15,000 to be paid back in equal annual payments which begin​ today, and will continue to be payable at the beginning of each year for a total of five years. Interest on the loan is​ 8%. What is the amount of the loan​ payment?

3478.31

You wish to borrow​ $2,000 to be repaid in 12 monthly installments of​ $170.30. The annual interest rate is

4%

Edward Johnson decided to open up a Roth IRA. He will invest​ $1,800 per year for the next 35 years. Deposits to the Roth IRA will be made via a​ $150 payroll deduction at the end of each month. Assume that Edward will earn​ 8.75% annual interest compounded monthly over the life of the IRA. How much will he have at the end of 35​ years?

414405

Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $398,930 due in 28 years. In other​ words, they will need $398,930 in 28 years. Toni​ Flanders, the​ company's CEO, is scrambling to discount the liability to the present to assist in valuing the​ firm's stock. If the appropriate discount rate is 7 percent, what is the present value of the​ liability?

60000 total val * (1 / (1 + interest rate) ^ years)

​SellUCars, Inc. offers you a car loan at an annual interest rate of​ 8% compounded monthly. What is the annual percentage yield of the​ loan?

8.3

At a discount rate of 7.00​%, find the present value of a perpetual payment of ​$8,000 per year. If the discount rate were lowered to 3.50​%, half the initial​ rate, what would be the value of the​ perpetuity? a. If the discount rate were 7.00​%, the present value of the perpetuity is​ $nothing. ​ (Round to the nearest​ cent.)

8000/.07

Ingrid Birdman can earn a nominal annual rate of return of​ 12%, compounded semiannually. If Ingrid made 40 consecutive semiannual deposits of​ $500 each, with the first deposit being made​ today, how much will she accumulate at the end of Year​ 20? Round off to the nearest​ $1.

82024

Harry just bought a new four−wheel−drive Jeep Cherokee for his lumber business. The price of the vehicle was​ $35,000, of which he made a​ $5,000 down payment and took out an amortized loan for the rest. His local bank made the loan at​ 12% interest for five years. He is to pay back the principal and interest in five equal annual installments beginning one year from now. Determine the amount of​ Harry's annual payment.

8322

Calvin Johnson has a ​$4,000 debt balance on his Visa card that charges 10.2 percent APR compounded monthly. In​ 2009, Calvin's minimum monthly payment is 4 percent of his debt​ balance, which is ​$160. How many months​ (round up) will it take Calvin Johnson to pay off his credit card if he pays the current minimum payment of $160 at the end of each​ month? In​ 2010, as the result of a federal​ mandate, the minimum monthly payment on credit cards rose to 5 percent. If Calvin made monthly payments of ​$200 at the end of each​ month, how long would it take to pay off his credit​ card?

=NPER(.0085,-160,4000,0)

(Annuity payments) A firm borrows ​$30,000 from the bank at 6 percent compounded annually to purchase some new machinery. This loan is to be repaid in equal annual installments at the end of each year over the next 6 years. How much will each annual payment​ be? The amount of each annual payment will be ​(Round to the nearest​ cent.)

=PMT (RATE, NPER, PV, FV) = PMT(.06, 6, 30000, 0) 6100.9

Ford Motor​ Company's current incentives include 3.9 percent APR financing for 96 months or $1,300 cash back on a Mustang. ​ Let's assume Suzie Student wants to buy the premium Mustang​ convertible, which costs $20,000​, and she has no down payment other than the cash back from Ford. If she chooses the ​$1,300 cash​ back, Suzie can borrow from the VTech Credit Union at 5.9 percent APR for 96 months​ (Suzie's credit​ isn't as good as Prof.​ Finance). What will Suzie​ Student's monthly payment be under each​ option? Which option should she​ choose? a. If Suzie chooses 3.9 percent APR financing for 96 months to buy the premium Mustang​ convertible, which costs $20,000=PMT(82.353251)​, what will her monthly payment​ be? ​ (Round to the nearest​ cent.) b. If Suzie chooses ​$1,300 cash back to buy the premium Mustang convertible and borrows ​$18,700 from the VTech Credit Union at 5.9 percent APR for 96 ​months, how much will her monthly payment​ be? ​$244.8244.8 ​(Round to the nearest​ cent.) c. Which option should Suzie Student​ choose? ​(Select the best choice​ below.) A. Choose cash back financing because the monthly payment under this option is lower. B. Choose low interest rate financing because the monthly payment under this option is lower.

=PMT(RATE, NPER, PV, FV) = PMT (.00325,96,20000, 0) part c is b

​(Present value of annuities and complex cash flows​) You are given three investment alternatives to analyze. The cash flows from these three investments are as​ follows: Investment Alternatives End of Year A B C 1 ​$ 20,000 ​$ 20,000 2 20,000 3 20,000 4 20,000 5 20,000 ​$ 20,000 6 20,000 100,000 7 20,000 8 20,000 9 20,000 10 20,000 20,000 Assuming an annual discount rate of 16 ​percent, find the present value of each investment. a. What is the present value of investment A at an annual discount rate of 16 ​percent?

=PV(.16,5,20000,0) Y=PV(.16,6,20000,0) =PV(.16,4,0,Y)

Determine the present value of an annuity due of $8,000 per year for 25 years discounted back to the present at an annual rate of 11 percent. What would be the present value of this annuity due if it were discounted at an annual rate of 16 ​percent? a. If the annual discount rate is 11 ​percent, the present value of the annuity due is ​$nothing. ​(Round to the nearest​ cent.)

=PV(rate,nper,pmt,fv,type) =PV(.11, 25, 8000, 0, 1) a = 74785.09

You've been offered a loan of ​$10,000​, which you will have to repay in 11 equal annual payments of ​$2,000​, with the first payment due one year from now. What interest rate would you pay on that​ loan? The interest rate you would pay on the loan is nothing​%. ​ (Round to two decimal​ places.)

=RATE(11, 2000, -10000, 0) 16.15

​(Future value of an​ annuity) ​ Let's say you deposited ​$160,000 in a 529 plan​ (a tax advantaged college savings​ plan) hoping to have ​$420,000 available 12 years later when your first child starts college. ​ However, you​ didn't invest very​ well, and 2 years later the account balance dropped to ​$140,000. ​ Let's look at what you need to do to get the college savings plan back on track. a. What was the original annual rate of return needed to reach your goal when you started the fund 2 years​ ago? b. With only ​$140,000 in the fund and 10 years remaining until your first child starts​ college, what annual rate of return would the fund have to make to reach your ​$420,000 goal if you add nothing to the​ account? c. Shocked by your experience of the past 2 ​years, you feel the college fund has invested too much in​ stocks, and you want a​ low-risk fund in order to ensure you have the necessary ​$420,000 in 10 years. You are willing to make​ end-of-the-month deposits to the fund as well. You find you can get a fund that promises to pay a guaranteed annual return of 6 percent which is compounded monthly. You decide to transfer the ​$140,000 to this new fund and make the necessary monthly deposits. How large of a monthly deposit must you make into this new​ fund? d. After seeing how large the monthly deposit would be​ (in part c of this​ problem), you decide to invest the ​$140,000 today and ​$500 at the end of each month for the next 10 years into a fund consisting of 50 percent stock and 50 percent bonds and hope for the best. What APR would the fund have to earn in order to reach your ​$420,000 ​goal?

=RATE(15,0,-150000,450000) =RATE(13,0,-130000,450000) =PMT((.06/12),120,-130000,450000) =RATE(120, -450., -130000,450000)

Advantages to borrowing in the private market include A. reduced initial costs. B. lower interest costs. C. less restrictive covenants. D. avoiding future SEC registration.

A

All of the following operate as financial intermediaries EXCEPT A. the U. S. Treasury B. mutual funds. C. insurance companies. D. commercial banks.

A

An investor would buy a​ ________ if he or she believes that the price of the underlying stock or asset will fall in the near future. A. put option B. futures contract to take delivery of an asset at a future date C. call option D. convertible bond

A

a. If you put your inheritance in an account that earns 7 percent interest compounded​ annually, how many years will it be before your inheritance grows to ​$30,000​? b. If you let your money grow for 10.25 years at 7 percent​, how much will you​ have? c. How long will it take your money to grow to ​$30,000 if you move it into an account that pays 3 percent compounded​ annually? How long will it take your money to grow to ​$30,000 if you move it into an account that pays 11 percent​? d. What does all this tell you about the relationship among interest​ rates, time, and future​ sums?

A = 6 B = 40,014.16 initial invested (1 + interest rate)^years c = 13.8 d = 3.9 POSITIVE

The area of finance that deals with long−term investment decisions is known as A. capital budgeting. B. capital structure. C. financial strategy. D. working capital management.

A

The interest on corporate bonds is typically paid A. semiannually. B. annually. C. monthly. D. quarterly.

A

The principal savers in the financial markets are A. individuals. B. banks. C. governments. D. businesses.

A

The term stockholder is equivalent to A. shareholder. B. stakeholder. C. general partner. D. creditor.

A

The yield on a corporate bond with a 20 year maturity would include A. the risk−free rate plus a default risk​ premium, a liquidity risk premium and a maturity risk premium. B. the real rate of​ interest, the expected inflation rate and a default risk premium. C. only the real rate of interest and expected inflation. D. the risk−free rate multiplied by​ 1+ default rate.

A

Which of the following financial instruments is not traded in the capital​ markets? A. debt with a maturity of less than one year B. bonds C. common stock D. preferred stock

A

There are three basic questions that are addressed by the study of finance. They​ are: ​(Select all that​ apply.) A. How can the firm best manage its cash flows as they arise in its​ day-to-day operations​ (working capital management​ decisions)? Your answer is correct. B. Which parts of the company should receive less capital​ (capital rationing)? C. How should the firm raise money to fund new investments​ (capital structure​ decisions)? Your answer is correct. D. What​ long-term investments should the firm undertake​ (capital budgeting​ decisions)?

ACD

Which of the following statements regarding a sole proprietorship are​ correct? ​(Select all that​ apply.) A. Sole proprietorships are easy to set up with no paperwork required before the business can be opened. B. The sole proprietor is personally responsible for all debt of the sole proprietorship. C. Sources of funds for a sole proprietorship typically include personal​ savings, as well as raising funds from a bank or personal loans from friends and family. D. One advantage of the sole proprietorship is that the survival of the firm does not depend upon just one person.

ABC

Which of the following financial instruments entails the most risk and potentially the highest returns for​ investors? A. debt with a maturity of less than one year B. preferred stock C. bonds D. common stock

D

Preferred stock is an equity security that has seniority rights. ​(Select all that​ apply.) A. During the liquidation of a​ company, holders of preferred stock would have a claim on assets before any claims by common stock shareholders. Your answer is correct. B. Preferred stock has voting​ rights, which supercede the voting rights of common stockholders. C. Preferred stock is sometimes referred to as a hybrid security. Your answer is correct. D. Owners of preferred stock receive their dividends before dividends are distributed to common stock shareholders. Your answer is correct. E. Preferred stock​ dividends, which are unpaid due to a lack of profits may accrue to be paid later when the corporation returns to profitability.

ACDE

Assuming two investments have equal​ lives, a high discount rate tends to favor A. the investment with even cash flow. B. the investment with large cash flow early. C. the investment with large cash flow late. D. neither investment since they have equal lives.

B

Jillian has purchased AAA rated corporate bonds that will mature in 20 years . She plans to sell the bonds in 10 years as she approaches retirement age. The most significant risk she faces is A. default risk. B. maturity risk. C. liquidity risk. D. None of the​ above, the bonds are essentially risk−free.

B

The par value of a bond A. is determined by the investor. B. generally is​ $1,000. C. never equals its market value. D. is never returned to the bondholder.

B

The par value of a bond is​ _________. ​ (Select the best choice ​ below.) A. the amount paid for a bond on the secondary market B. the face value of the​ bond, which is received by the bondholder when the bond matures at its normal maturity date C. the value of a bond sold to build a golf course D. the amount of annual interest paid by a corporate bond

B

The price at which the stock or asset may be purchased from​ (or sold​ to) the option writer is referred to as A. open interest. B. exercise or strike price. C. intrinsic value of the option. D. option premium.

B

What does the agency problem refer​ to? A. The problem associated with financial managers and Internal Revenue agents. B. The problem that results from potential conflicts of interest between the manager of a business and the stockholders. C. The conflict that exists between the board of directors and the employees of the firm. D. The conflict that exists between stockbrokers and investors.

B

When managers have little or no ownership in the​ firm, they are less likely to work energetically for the​ company's shareholders. We call this type of conflict​ a(n) __________. ​ (Select the best choice ​ below.) A. ownership problem B. agency problem C. management problem D. moral problem

B

Which of the following is true about​ bonds? A. Their interest rate always varies with the Consumer Price Index B. They have a fixed​ maturity, and they pay an amount equal to the maturity value times the coupon rate each year. C. At maturity of the​ bond, the investor receives the market price of the bond. D. They are obligations from the investor to the corporation.

B

Which of the following statements best represents what finance is​ about? A. Maximizing profits B. The study of how people and businesses make investment decisions and how to finance those decisions. C. How​ political, social, and economic forces affect corporations D. Reducing risk

B

​A(n) ________ gives the holder the right to buy a stated number of shares at a specified price for a limited time. A. stock index futures contract B. call option C. interest rate futures contract D. put option

B

The typical business organization for large companies is the corporation. Advantages of the corporate form of business organization​ include: ​ (Select all that​ apply.) A. The corporation is owned by the board of directors who share in the profits and the liabilities of the company. B. Corporations have a greater ease in raising large sums of money than other forms of business organization. C. The​ owners' liability is limited to the amount of their investment in the company. D. The life of the business is not tied to the status of the corporate owners.

BCD

Which of the following are legal forms of business​ organization? ​(Select all that​ apply.) A. The triumvirate. B. The corporation. C. The partnership. D. The sole proprietorship.

BCD

Investment companies are specialized financial intermediaries that provide financial services to businesses. These investment companies​ include: ​(Select all that​ apply.) A. savings and loans. B. private equity firms. Your answer is correct. C. mutual funds. Your answer is correct. D. public equity firms. E. hedge funds.

BCE

Banks collect the savings of individuals and businesses and then lend these pooled savings to other individuals and businesses. In this​ role, banks​ are: ​(Select all that​ apply.) A. making money by paying a rate of interest to savers that exceeds the rate they charge to borrowers. B. making money by charging a rate of interest to borrowers that exceeds the rate they pay to savers. C. acting as a borrower. D. acting as a financial intermediary.

BD

A call option on a stock is a financial instrument defined by which of the following​ statements? A. It obligates the investor holding it to buy the stock at the specified price at the stated date in the future. B. It gives the investor holding it the​ right, but not the​ obligation, to sell the stock at the specified price at the stated date in the future. C. It gives the investor holding it the​ right, but not the​ obligation, to buy the stock at the specified price at the stated date in the future. D. It obligates the investor holding it to sell the stock at the specified price at the stated date in the future.

C

Both venture capital​ (VC) firms and leveraged buyout​ (LBO) firms are types of​ ___________. ​(Select the best choice​ below.) A. hedge funds B. money market funds C. mutual funds D. ​exchange-traded funds E. private equity firms

E

Foregoing the earning potential of a dollar today is referred to as the A. creation of wealth. B. time value of money. C. opportunity cost concept. D. ​risk/return tradeoff.

C

Secondary markets A. are an important vehicle for established firms to raise additional money for expansion. B. are a means by which funds are cycled from savers to borrowers. C. are concerned with the trading of previously issued securities between investors. D. function as a place for​ smaller, less well−known firms to issue securities.

C

The strike price is the A. premium minus the exercise price. B. price paid for the option. C. price at which the stock or asset may be purchased from the writer. D. minimum value of the option.

C

Unlike the owner of​ a(n) ________​ contract, the owner of​ a(n) ________ contract does not have to exercise it A. ​put, call B. ​long, short C. ​futures, option D. ​option, futures

C

When managers have little or no ownership in the​ firm, they are less likely to work energetically for the​ company's shareholders. We call this type of conflict​ a(n) __________. ​ (Select the best choice ​ below.) A. management problem B. ownership problem C. agency problem D. moral problem

C

The Fisher effect can be expressed mathematically as A. the real rate of​ interest= the nominal rate − the inflation​ rate). B. ​( nominal​ rate)= (the real rate of​ interest) ( the inflation​ rate). C. the nominal​ rate)= the real rate of interest​ + the inflation​ rate). D. ​(1+ the nominal​ rate)= (1+the real rate of​ interest) (1​ + the inflation​ rate).

D

The detailed legal agreement between a​ bond's issuer and and its trustees is known as the A. covenant. B. collateral agreement. C. call provision. D. indenture.

D

Advantages of privately placing debt include all of the following except A. flexibility. B. speed. C. reduced placement costs. D. restrictive covenants.

D

Corporate debt can be privately placed with A. union pension funds. B. state pension funds C. life insurance companies D. all of the above

D

Each of the following is true of Mutual Funds EXCEPT A. Mutual Fund shares must be bought from or sold to the Fund by investors. B. Funds can be classified as load or no−load funds. C. The NAV is the total value of stock held by the fund divided by the number of outstanding shares in the mutual fund. D. An index fund is the fund with the highest expenses payable by investors.

D

Uses of future contracts include A. speculating on future price movements of commodities which the speculator neither uses nor produces. B. reducing uncertainty about the future cost of key inputs. C. reducing uncertainty about the prices that will be received when a commodity is ready for market. D. all of the above.

D

When comparing annuity due to ordinary​ annuities, annuity due annuities will have higher A. future values. B. annuity payments. C. present values. D. both A and C. E. all of the above.

D

Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the​ ________ premium is lower for government bonds. A. maturity B. interest rate risk C. inflation D. default

D

If you put​ $700 in a savings account with a​ 10% nominal rate of interest compounded​ monthly, what will the investment be worth in 21 months​ (round to the nearest​ dollar)? A. ​$828 B. ​$1,176 C. ​$827 D. ​$833

D

There are several measures that can be taken to help limit the agency problem. ​ (Select the best choice​ below.) A. Compensation plans can be put in place to reward managers when they maximize shareholder wealth. B. The board of directors can actively monitor the actions of managers to keep pressure on them to act in the best interest of shareholders. C. Financial markets play a key role in monitoring management. D. Firms that fail to maximize shareholder wealth may be taken over and their management team replaced. E. All of the above are correct.

E

Your folks just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for ​$37,632.97 that will pay them ​$3,500 per year for 20 years. They​ don't have the slightest idea what return they would be making on their investment of ​$37,632.97. What rate of return would they be​ earning? The annual rate of return your folks would be earning on their investment is nothing​%. ​ (Round to two decimal​ places.)

Enter into excel =RATE(nper,pmt,pv,fv) =RATE(20,3500,-37632.97,0) change it to percentage and make sure it has decimals 6.81

Financial intermediaries​ include: ​(Select the best choice​ below.) A. Insurance companies B. Investment companies C. Commercial banks D. Investment banks E. Finance companies F. All of the above

F

Options can only be purchased for individual​ stocks, not for funds or indexes. True False

FALSE

Options contracts all expire on the last trading day of the month. True False

FALSE

The current yield is the average rate of interest a bond will from the time of purchase until it matures. True False

FALSE

The present value of a​ $100 perpetuity discounted at​ 5% is​ $1200.

FALSE

​(Future value of an ordinary​ annuity) You are graduating from college at the end of this semester and after reading the The Business of Life box in this​ chapter, you have decided to invest ​$4,900 at the end of each year into a Roth IRA for the next 43 years. If you earn 6 percent compounded annually on your​ investment, how much will you have when you retire in 43 ​years? How much will you have if you wait 10 years before beginning to save and only make 33 payments into your retirement​ account? How much will you have when you retire in 43 ​years?

FV(annuity) = A[(1+r)^n-1 /r] 4900(((1+0.06)^43-1) / 0.06)

(Determining the outstanding balance of a​ loan) Ten years ago you took out a $200,000​, 25​-year mortgage with an annual interest rate of 10 percent and monthly payments of ​$1,817.40. What is the outstanding balance on your current loan if you just make the 120th ​payment? If you just make the 120th ​payment, the outstanding balance on your current loan is ​$nothing. ​(Round to the nearest​ cent.)

Formula: FV = PV x (1+R%)^N - PMT x ((1+R%)^N-1)/R% FV = 250000*(1+8%/12)^120 - 1929.54055*((1+8%/12)^120-1) /(8%/12) =

Financial markets are often described by the maturities of the securities traded in them. Money markets are markets for​ short-term debt instruments with maturities of 1 year or​ less, while capital markets are markets for​ long-term financial instruments with maturities that extend beyond 1 year. ​(Select from the​ drop-down menus.)

MM CM

As the time to maturity​ increases, the maturity premium increases. True False

TRUE

Capital structure refers to the financing of long−term investments. True False

TRUE

Consider an investment that has cash flows of​ $500 the first year and​ $400 for the next four years. If your opportunity cost is​ 10%, you should be willing to pay​ $1,607.22 for this investment.

TRUE

Financial decisions can be difficult because the cost of investments can be estimated with greater confidence than future payoffs. True False

TRUE

If the issuing company becomes​ insolvent, the claims of the bondholders are honored before those of preferred stockholders. True False

TRUE

Mutual Funds and ETFs provide the investor a chance to diversify without having to buy shares in numerous corporations. True False

TRUE

One characteristic of an annuity is that an equal sum of money is deposited or withdrawn each period.

TRUE

The difference between mutual funds and ETFs is that ETFs are traded on exchanges and mutual funds are not. True False

TRUE

Determine the present value of an ordinary annuity of ​$3,500 per year for 19 ​years, assuming it earns 12 percent. Assume that the first cash flow from the annuity comes at the end of year 9 and the final payment at the end of year 27. That​ is, no payments are made on the annuity at the end of years 1 through 8. ​ Instead, annual payments are made at the end of years 9 through 27. The present value of the annuity at the end of year 8 is ​$nothing. ​(Round to the nearest​ cent.)

To find the present value =PV (.12, 19, 3500, 0) To find TODAY present value = PV(.12, 8, 0, 25780.22)

To find the present value of an annuity​ due, one could

find the present value of an ordinary annuity and multiply by​ 1+i.

Limited partnerships have two classes of partners. The ▼ limited general partner actually runs the business and faces unlimited liability for the​ firm's debt, while the ▼ limited general partner is only liable up to the amount the ▼ limited general partner invested. ​(Select from the​ drop-down menus.)

general limited limited

​(Present value of a complex​ stream) Don Draper has signed a contract that will pay him $60,000 at the beginning of each year for the next 5 ​years, plus an additional $110,000 at the end of year 5. If 7 percent is the appropriate discount​ rate, what is the present value of this​ contract? The present value of the contract is ​$nothing. ​(Round to the nearest​ cent.)

present = future (1 - (1 + r)^-n) / r) p = 110000 (1 - 1.07^-5) / .07)


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