MTSU FIN 3010 CH 5-7

Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of $1,013. The bonds pay interest annually, mature in 11 years, and have a yield to maturity of 5.34 percent. What is the current yield?

5.43 percent

Cromwell Enterprises is acquiring Athens, Inc. for $899,000. Athens has agreed to accept annual payments of $210,000 at an interest rate of 8.5 percent. How many years will it take Cromwell Enterprises to pay this purchase?

5.55 years

The 8 percent, $1,000 face value bonds of Sweet Sue Foods are currently selling at $1,057. These bonds have 16 years left until maturity. What is the current yield?

7.57 percent

There are four open positions on the board of directors of Double Tree Hotels. The company has 360,000 shares of stock outstanding. Each share is entitled to one vote. How many shares of stock must you own to guarantee your personal election to the board of directors if the firm uses cumulative voting?

72,001 shares

The next dividend payment by Swenson, Inc. will be $1.80 per share. The dividends are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for $48.50 per share, what is the required return?

9.21 percent

Hughes Motors will sell you a $15,000 car for $380 a month for 48 months. What is the interest rate?

9.94 percent

You purchase a bond with a coupon rate of 7 percent, semiannual coupons, and a clean price of $1,011. If the next coupon payment is due in four months, what is the invoice price?

$1,022.67

The manager of Gloria's Boutique has approved Carla's application for credit. The maximum payment that has been approved is $65 a month for 24 months. The APR is 15.7 percent. What is the maximum initial purchase that Carla can make given this credit approval?

$1,331.42

Julie is borrowing $12,800 to purchase a car. The loan terms are 36 months at 7.5 percent interest. How much interest will she pay on this loan if she pays the loan as agreed? Round your answer to the nearest whole dollar.

$1,534

Delfino's expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for Year 5 if the firm increases its dividend by 2 percent annually?

$1.50 * (1.02)^4

Today, you are purchasing a 20-year, 6 percent annuity at a cost of $120,000. The annuity will pay annual payments starting 1 year from today. What is the amount of each payment?

$10,462.15

Kristina started setting aside funds three years ago to save for a down payment on a house. She has saved $900 each quarter and earned an average rate of return of 4.8 percent. How much money does she currently have saved for her down payment?

$11,542.10

McClary Tires just decided to save money each year for the next four years to help fund a new building. If it earns 6.5 percent on its savings, how much will the firm have saved at the end of year 4? End of Year, Amount saved 1 , $20,000 2, $24,000 3, $28,000 4, $32,000

$113,200.39

Today, you are borrowing money from your local bank. The loan is to be repaid in one lump sum payment of $15.000 one year from now. How much are you borrowing today if the APR is 10.6 percent?

$13,562.39

Brickhouse is expected to pay annual dividends of $1.90 and $2.10 over the next two years, respectively. After that, the company expects to pay a constant dividend of $2.30 a share. What is the value of this stock at a required return of 16 percent?

$13.89

Doris's Fashions has just signed a $2.2 million contract. The contract calls for a payment of $0.6 million today, $0.8 million one year from today, and $0.8 million two years from today. What is this contract worth today if the firm can earn 8.2 percent on its money?

$2,022,709.37

A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be paid in four annual payments of $625 each, starting one year after the drawing. How much would this prize be worth to you if you can earn 9 percent on your money?

$2,024.82

Turntable Industrial, Inc. owes your firm $138,600. This amount is seriously delinquent so your firm has offered to arrange a payment plan in the hopes that it might at least collect a portion of this receivable. Your firm's offer consists of weekly payments for one year at an interest rate of 3 percent. What is the amount of each payment?

$2,706.33

Suppose your company needs to raise $28 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you're evaluating two issue alternatives: an 8 percent annual coupon and a zero coupon bond. Your company's tax rate is 25 percent. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeros? (Assume annual compounding on the zero coupon bond.)

$30.24 million; $130.51 million

Arts and Crafts Warehouse wants to issue 15-year, zero-coupon bonds that yield 7.5 percent. What price should it charge for these bonds if the face value is $1,000? Assume semiannual compounding.

$331.40

A bond has a par value of $1,000, a current yield of 7.5 percent, and a semiannual interest payments. The bond quote is 98.6. What is the amount of each coupon payment?

$36.98

A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now, with the first payment coming 6.5 years from now. If the discount rate is 7 percent compounded semiannually, what is the value of this annuity 4 years from now?

$37,139.58

Kris will receive $800 a month for the next five years from an insurance settlement. The interest rate is 4 percent, compounded monthly, for the first two years and 5 percent, compounded monthly, for the final three years. What is this settlement worth to him today? A. $36,003.18 B. $38,219.97 C. $41,388.71 D. $43,066.22 E. $45,115.16

$43,066.22

Tim Taylor Tools is a young start-up company. No dividends will be paid on the stock over the next eight years because the firm needs to plow back its earnings to fuel growth. The company will then pay a $9 per share dividend in year 8 and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price?

$45.44

Kurt wants to have $25,000 in an investment account four years from now. The account will pay .02 percent interest per month. If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal?

$496.75

West Coast Builders is offering preferred stock for sale with a 6.75 percent rate of return. What is the amount of the annual dividend on this stock if the current market price per share is $83.87?

$5.66

Capstone Investments is considering a project that will produce cash inflows of $11,000 at the end of Year 1, $24,000 in Year 2, and $36,000 in Year 3. What is the present value of these cash inflows at a discount rate of 12 percent?

$54,578.17

At the end of this month, Les will start saving $150 a month for retirement through his company's retirement plan. His employer will contribute an additional $0.50 for every $1.00 that he saves. If he is employed by this firm for 30 more years and earns an average of 10.5 percent on his retirement savings, how much will Les have in his retirement account 30 years from now?

$566,190.22

The Egg House just borrowed $260,000 to build a new restaurant. The loan terms call for equal annual payments at the end of each year. The loan is for 15 years at an APR of 8 percent. How much of the first annual payment will be used to reduce the principal balance?

$9,575.68

A recent alumnus of your university gifted money to the school to fund annual scholarships or students in need. The school expects to earn an average rate of return of 5.5 percent and distribute $50,000 annually in scholarships. What was the amount of the gift?

$909,090.91

A 5.5 percent $1,000 bond matures in seven years, pays interest semiannually, and has a yield to maturity of 6.23 percent. What is the current market price of the bond?

$959.09

Today, you are buying a $1,000 face value bond at an invoice price of $987. The bond has a 6 percent coupon and pays interest semiannually. There are 2 months until the next coupon date. What is the clean price of this bond?

$967

What is the effective annual rate of 14.9 percent compounded quarterly?

15.75 percent

PayDay Loans is offering a special on one-year loans. The company will loan you $5,000 today in exchange for one payment of $5,900 one year from now. What is the APR on this loan?

18.00 percent

The Townhouse Galleries offers credit to its customers at a rate of 1.6 percent per month. What is the effective annual rate of this credit offer?

20.98 percent

A new financial services company just opened in your town. To attract customers, it is offering a "9-11" loan special. The company will lend a $9 today in exchange for a payment of $11 one year from today. What is the APR on this loan?

22.22 percent

AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?

3.75 percent

Belk Department Store charges a daily rate of 0.01 percent on its store credit cards. What interest rate is the company required by law to report to potential customers?

36.50 percent

Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are three open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting?

Cumulative

The price of a stock at year 4 can be expressed as:

D5/(R-g)

You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information?

Annuity B has both a higher present value and a higher future value than Annuity A

Which one of the following qualifies as an annuity?

Auto loan payment

The price at which an investor can purchase a bond form a dealer is called the _____ price.

asked

A bond dealer sells at the ______ price and buys at the ______ price.

asked; bid

A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a:

commission broker

An unexpected decrease in market interest rates will cause a:

coupon bond's yield to maturity to decrease.

The annual interest divided by the face value of a bond is referred to as the:

coupon rate

Which one of the following can be classified as an annuity but not as a perpetuity?

Equal annual payments for life

Which one of the following statements is correct?

From a legal perspective, preferred stock is a form of corporate equity.

Which of the following characteristics apply to a perpetuity? I. Constant cash flow dollar amount II. Unequal cash flow dollar amount III. Limited time period IV. Infinite time period

I and IV only

The term structure of interest rates is affected by which of the following? I. Interest rate risk premium II. Real rate of interest III. Default risk premium IV. Inflation premium

I, II, and IV only

Kate owns a stock with a market price of $31 per share. This stock pays a constant annual dividend of $0.60 per share. If the price of the stock suddenly increases to $36 a share, you would expect the: I. dividend yield to increase. II. dividend yield to decrease. III. capital gains yield to increase. IV. capital gains yield to decrease.

II only

Changes in interest rate affect bond prices. Which one of the following compensates bond investors for this risk?

Interest rate risk premium

You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of three years. What type of loan did you obtain?

Interest-only

Which one of the following bonds is most apt to have the smallest liquidity premium?

Treasury bill

The written agreement that contains the specific details related to a bond issue is called the bond:

indenture

The NYSE:

is in the business of attracting order flow.

Inside quotes are defined as the:

lowest asked and highest bid offers.

A call provision grants the bond issuer the:

option of repurchasing the bonds prior to maturity at a prespecified price.

To be a member of the NYSE, you must:

own a trading license

A registered form bond is defined as a bond that:

pays coupon payments directly to the owner of record.

The primary purpose of protective covenants is to help:

protect bondholders from issuer actions

River Rock, Inc. just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent?

$24.65

Amish Bakery needs $210,000 today to fund a new project. The project will not produce any cash flows for two years and thus the firm agreed to a two-year, pure discount loan at 7.5 percent interest. How much will the firm owe on this loan at the time it must be repaid?

$242,681.25

You recently sold an antique car you owned and valued greatly. However, you needed money and agreed to sell the car at a price of $58,000, to be paid in monthly payments of $1,500 each for 48 months. What interest rate did you charge for financing the sale?

11.03 percent

Which one of the following has the highest effective annual rate?

6 percent compounded monthly

One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue price?

6.05 percent lower

The stock price of Russell, Inc. is $81. Investors require a 14 percent rate of return on similar stocks. If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company's stock price?

8.81 percent

Which one of the following statements is correct?

Bond markets are dealer based

Cindy is taking out a loan today. The cash amount that she will receive today is equal to the present value of the lump sum payment that she will be required to pay two years from today. Which type of loan is this?

Pure discount

First Trust offers personal loans at 7.7 percent compounded monthly. Second Bank offers similar loans at 7.75 percent compounded semiannually. Which one of the following statements is correct concerning these loans?

The First Trust loan has an effective rate of 7.98 percent

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase?

To compute the initial loan amount, you must use a monthly interest rate.

A bond has a yield to maturity of 9.38 percent, a 7.5 percent annual coupon, a $1,000 face vale, and a maturity date 21 years from today. What is the current yield?

9.04 percent

You just received a loan offer from Friendly Loans. The company is offering you $5,000 at 14.3 percent interest. The monthly payment is only $100. If you accept this offer, how long will it take you to pay off the loan?

6.37 years

What is the effective annual rate of 6.5 percent compounded quarterly?

6.66 percent

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Inflation