CHAPTER 3,4,5,6

A​ smooth-talking used-car salesman who smiles considerably is offering you a great deal on a​ "pre-owned" car. He​ says, "For only 88 annual payments of 2,400​, this beautiful 1998 Honda Civic can be​ yours." If you can borrow money at 10​%, what is the price of this​ car? Assume the payment is made at the end of each year.

$12803.82

Your parents have promised you possible deposits of​ $1,050, $1,500 and​ $2,500 at the end of the next three​ years, respectively. If your parents can earn​ 6% per​ year, what size of a​ one-time deposit would they have to make today in order to keep their​ promise?

​$4,424.61

You invest​ $600 an an annual rate of​ 7% for fifteen years. How much more interest would you earn in year 11 with compound vs. simple interest and for the whole 15​ years?

​$40.62; $425.42

Big House Nursery Inc. has issued 20year ​$1,000 face​ value, 8% annual coupon​ bonds, with a yield to maturity of​ 10%. The current price of the bond is​ ________.

​$829.73

Five years​ ago, Simpson Warehouses Inc. issued twenty−five−year ​10% annual coupon bonds with a​ $1,000 face value each. Since​ then, interest rates in general have risen and the yield to maturity on the Thompson bonds is now​ 12%. Given this​ information, what is the price today for a Thompson Tarps​ bond?

​$850.61

The Rogue Outfitters Corporation​ $1,000 par​ value, 15% annual coupon​ bonds, have 6 years remaining to maturity and are currently selling for​ $938.45. What is the​ firm's yield to maturity for these​ bonds?

​16.70%

For an​ 18-year fixed payment loan for​ $200,000 with an annual interest rate of​ 5.20% and making QUARTERLY​ payments, what percent of your first payment would apply to the​ principal?

​39.45%

For a nominal interest rate of​ 10% and inflation of​ 3%, according to the Fisher​ Effect, what would be the approximate real​ rate?

​7%

A security that is selling for​ $3,000 and promises to pay annual interest or​ $250 forever would have an annual yield of

​8.33%

You plan to buy a new car when you graduate in 2 years. The car you want currently costs​ $25,000 and car prices are expected to increase at an annual rate of​ 4% per year. What will your car cost by the time you​ graduate? Suppose you wait another 3 years after graduation to make your​ purchase?

$27,040; $30,416

You deposit​ $150 at the end of each of the next 12 years earning​ 9.00% per year. What would your balance be at the end of the 12​ years?

$3,021.11

A financial planner recommends that you have accumulated​ $2.0 million by the time that you retire in 25 years. If you can earn an annual rate of return of​ 5%, how much must you invest for each of the next 25 years in order to achieve this​ goal?

$41,905

Your parents tell you that if you apply yourself and earn a minimum grade of B​ - in Finance​ 3101, they will reward you by depositing in your account​ $1,050 next​ year, $1,500 the following year and​ $2,500 the year after that. If you can earn an annual rate of​ 4%, how much would you have in your account immediately after your​ parents' final​ deposit?

$5,195.68

You have​ $675 today which is enough to buy 375 bottles of Diet Pepsi. If the price of Diet Pepsi is expected to increase by​ 4% over the next​ year, what approximate nominal rate would you have to earn to be able to buy 400 bottles of Diet Pepsi next​ Year?

10.67%

A new CEO promises to increase company sales by​ 9% per year from its current level of​ $3,458,613 to a target level of​ $12 million. How long would it take for the new CEO to achieve his​ goal?

14 years

Upstate University charges ​$15 comma a year in graduate tuition. Tuition rates are growing at 22​% each year. You plan to enroll in graduate school in four years. What is your expected graduate tuition in four ​years?

16236.48

Rogue Recovery Inc. wishes to issue new bonds but is uncertain how the market would set the yield to maturity. The bonds would be 20m−​year, ​7% annual coupon bonds with a​ $1,000 par value. The firm has determined that these bonds would sell for​ $1,050 each. What is the yield to maturity for these​ bonds?

6.54%

Which rating of corporate bond yields in chapter 5 of our textbook is compared to yields on​ T-bills and​ T-bonds for the period 2000​ - 2013?

AAA

What is the EAR if the APR is​ 10.52% and compounding is​ daily?

Slightly above​ 11.09%

Which of the following statements about the relationship between yield to maturity and bond prices is​ FALSE?

When interest rates go​ up, bond prices go up.

When the​ ________ is less than the yield to​ maturity, the bond sells at​ a/the ________ the par value.

coupon​ rate; discount to

Ten years ago Salmon Acqua Farming Inc. issued twenty−five−year ​8% annual coupon bonds with a​ $1,000 face value each. Since​ then, interest rates in general have fallen and the yield to maturity on the Bacon bonds is now​ 7%. Given this​ information, what is the price today for such a​ bond?

​$1,091.08

Portland Brewery Inc. recently issued 30−year ​$1,000 face​ value, 12% annual coupon bonds. The market discount rate for this bond is only​ 7%. What is the current price of this​ bond?

​$1,620.45

What is the EAR if the APR is​ 6% and compounding is​ quarterly?

​6.14%

RadicaL CREATIONS Inc. just issued zero−coupon bonds with a par value of​ $1,000. If the bond has a maturity of 15 years and a yield to maturity of​ 10%, what is the current price of the bond assuming annual​ compounding?

​$239.39

If you can earn​ 6% per​ year, how much would you have to invest today to be able to purchase the car in​ #3 in two​ years? In five​ years? (You plan to buy a new car when you graduate in 2 years. The car you want currently costs​ $25,000 and car prices are expected to increase at an annual rate of​ 4% per year. What will your car cost by the time you​ graduate? Suppose you wait another 3 years after graduation to make your​ purchase?)

​$24,066; $22,729

You borrow​ $200,000 for 18 years at an annual rate of​ 5.20%.. What would be your fixed QUARTERLY loan​ payment?

​$4,294

Draw time lines from your perspective for the following: (a) You lend $350 two years from now and are repaid a total of $497 seven years from now; (b) You borrow $200 today and repay a total of $248 four years from now.

​-$106 at year one.

A widget seller sold​ 1,035 widgets in 2007 and 687 in 2015. What was the annual rate of sales of widgets over this​ period?

​-4.99%

If your investment doubles in 6​ 3/4 years, what approximate annual rate of return would you have​ earned? If you could earn an annual rate of​ 7.50%, approximately how long would it take for your investment to​ double?

​10.67%; 9.60 years

Which Figures in Chapter 5 of our textbook illustrate the history of inflation and​ 3-month T-bill​ yields, respectively?

​5.4; 5.5

You would liike to increase your purchasing power next year by about​ 4%. If you expect prices to increase at a rate of​ 2% over the next​ year, what approximate increase would you need in your salary in order to achieve your desired increase in purchasing​ power?

​6%

Given the​ following: default premium​ = 0.50​ % pts.; inflation​ 3.75%; real rate​ = 1.25%; maturity premium​ = 1.15%​ pts., what would be the nominal​ rate?

​6.65%