finance

Assume that you contribute $100 per month to a retirement plan for 20 years. Then you are able to increase the contribution to $200 per month for another 20 years. Given a 6 percent interest rate, what is the value of your retirement plan after 40 years?

$245,353

What is the value in year 3 of a $10,000 cash flow made in year 20 if interest rates are 5 percent?

$4,362.97

What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8 percent?

$4,506.11

What is the present value of a $500 deposit in year 1, and another $100 deposit at the end of year 4 if interest rates are 5 percent?

$558.46

Which of the following is the equivalent of $300 received today?

$795.99 to be received 20 years in the future assuming a 5 percent annual interest rate.

A mortgage broker is offering a $225,000 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 2.5 percent APR interest rate. After the second year, the mortgage interest rate charged increases to 8.5 percent APR. What are the mortgage payments in the first two years? What are the mortgage payments after the second year?

$889.02; $1,677.09

if the present value of an ordinary, 10-year annuity is $1,500 and interest rates are 8.5 percent, what's the present value of the same annuity due?

1,627.5 0.16 (1627.34 - 1627.66 ) PVA10 due = $1,500 x (1 + 0.085) = $1,627.5

What's the present value, when interest rates are 7.5 percent, of a $75 payment made every year forever?

1.000 75/0.075=1.000

What is the value in year 9 of a $1,000 cash flow made in year 2 if interest rates are 8 percent?

1.713.82 0.017 (1713.803 - 1713.837) FVN = PVx (1 + N FV9 = PV (2) x (1 + ) (9-2) FV9 = $1.000 x (1 + 0.08)7 = $1,000 x1. 713824 = $1,713.82

The Wall Street Journal reports that the rate on four-year Treasury securities is 7.50 percent and the rate on five-year Treasury securities is 9.15 percent. According to the unbiased expectations hypothesis, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)?

16.0 percent

Approximately what interest rate is needed to double an investment over four years?

18 percent

What is the present value of a $750 payment made in nine years when the discount rate is 10 percent?

318.0732 0.03 (318.0432 - 318.1032 ) PV = FV I (1 + iN PV= $750 / (1 + 0.10)9 = $750 / 2.357947691 = $318.0732

Compute the future value in year 10 of a $1,000 deposit in year 1, and another $1,500 deposit at the end of year 4 using an 8 percent interest rate.

4,379.31 0.43 (4378.88 - 4379.74) N=10 - 1 = 9 1 =8 PV=1000 PMT = 0 CPT FV = 1999.00 1999.00 + 2380.31 = 4379.31 N= 10 - 4=6 1=8 PV = 1500 PMT = 0 CPT FV = 2380.31

The Wall Street Journal reports that the current rate on five-year Treasury bonds is 2.85 percent and on 10-year Treasury bonds is 4.35 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today, E(5r5).

5.87 percent

What annual rate of return is implied on a $5,000 loan taken next year when $7,700 must be repaid in year 8?

6.36 percent

A deposit of $500 earns the following interest rates: -8 percent in the first year, -7.5 percent in the second year, and -4 percent in the third year. What would be the third year future value?

603.73 0.06 (603.67 - 603.79 ) FV = $500 x (1 + 0.08) (1 + 0.075) (1 + 0.04) = $500 x 1.08 x 1.075 x 1.04 = $603.72

Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $550 in ten weeks. What is the compound annual rate implied by this 10 percent rate charged for only ten weeks?

64.15 percent

Approximately how many years does it take to double a $800 investment when interest rates are 9 percent per year?

8 0 (8-8) N= 72 / 9 = 8 years

What is the future value of $750 deposited for one year earning an 8 percent interest rate annually.

810 0 (810 - 810 ) FVN = PVx (1 + )N FV1 = $750 x (1 + 0.08) 1 = $750 x 1.08 = $810

Compute the price of a 3.8 percent coupon bond with 20 years left to maturity and a market interest rate of 4.875 percent. (Assume interest payments are semiannual.)

863.64 0 (863.64 - 863.64 )

How many years (and months) will it take $2 million to grow to $4 million with an annual interest rate of 8 percent?

9.006 0.1 (8.906 - 9.106 ) N= In(FV / PV) / In(1 + ) = In(S4.000.000 / $2.000,000 / In1.08

The Wall Street Journal reports that the current rate on five-year Treasury bonds is 6.45 percent and on 10-year Treasury bonds is 7.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today, E(5r5).

9.07 percent

After saving diligently your entire career, you and your spouse are ready to retire with a nest egg of $600,000. You need to invest this money in a mix of stocks and bonds that will allow you to earn $5,000 per month for 30 years. What annual interest rate (APR) do you need to earn?

9.40 percent

A client in the 39 percent marginal tax bracket is comparing a municipal bond that offers a 6 percent yield to maturity and a similar-risk corporate bond that offers a 7.5 percent yield. What is the Equivalent Taxable-yield?

9.836 0.009 (9.827 - 9.845 ) Equivalent Taxable-yield = 6% / (1-0.39) = 0.09836 = 9.836%

A bond's main characteristics include

All of these choices are correct.

Bonds are issued by which of the following?

All of these choices are correct.

Which of the following are main issues of bonds?

All of these choices are correct.

Which of the following is a factor that determines the coupon rate of a company's bonds?

All of these choices are correct.

Which of these statements is false?

Bonds are always less risky than stocks.

Which of the following are money market securities to obtain short-term funds? (Select the most inclusive answer)

Both U.S. Treasury bills and commercial paper

Which of the following is NOT true when developing a time line?

Cash outflows are designated with a positive number.

Capital Market trades debt securities or instruments with maturities of less than one year.

False

If everything remains constant: A future value of an ordinary annuity is always greater than the future value of an annuity due.

False

Market interest rates and bond prices are inversely correlated. -A rise in prevailing interest rates increase all bonds' values -If interest rates fall. al bonds reduces in values

False

Which of the following statements is true?

Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued.

Which of the following statements is incorrect with respect to time lines?

Interest rates are not included on our time lines.

Which of these statements answers why bonds are known as fixed income securities?

Investors know how much they will receive in interest payments

Which of the following statements about the Rule of 72 is not true?

It illustrates the power of a discounted rate.

Which Standard & Poor's Bond credit rating does the following description belong to? "Currently highly vulnerable to non-payment."

Most speculative CC

Which of the following is NOT a capital market instrument?

U.S. Treasury bills

An annuity due

is an annuity in which the cash flows occur at the beginning of each period.

With regard to money deposited in a bank, future values are

larger than present values.

Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 5 percent, E(2r1) = 7 percent, E(3r1) = 7.5 percent E(4r1) = 7.85 percent Using the unbiased expectations theory, calculate the current (long-term) rates for one-year and two-year-maturity Treasury securities.

one-year: 5.00 percent, two-year: 6.00 percent

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

par or face value

Bond prices are quoted in terms of which of the following?

percent of par value

A perpetuity, a special form of annuity, pays cash flows

periodically forever.

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds?

primary markets

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

reinvestment rate risk

Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these?

secondary markets

When calculating the number of years needed to grow an investment to a specific amount of money

the higher the interest rate, the shorter the time period needed to achieve the growth.

People borrow money because they expect

their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on the loan.

The present value of annuity payments made far into the future is

worth very little today

The present value of annuity payments made far into the future is

worth very little today.

Say that you purchase a house for $150,000 by getting a mortgage for $135,000 and paying a $15,000 down payment. If you get a 15-year mortgage with a 6 percent interest rate, what are the monthly payments?

$1,139.21

A deposit of $1,000 earns the following interest rates? 8 percent in the first year, 7 percent in the second year, and 8 percent in the third year. What would be the third year future value?

$1,248.05

You started your first job after graduating from college. Your company offers a retirement plan for which the company contributes 50 percent of what you contribute each year. You expect to contribute $2,000 per year from your salary. You decide to invest the contributions in assets that you expect to earn 10 percent per year. If you plan to retire in 40 years, how big will you expect that retirement account to be?

$1,327,777.67

Ten years ago, Hailey invested $1,000 and locked in a 9 percent annual rate for 30 years (end 20 years from now). Aidan can make a 20-year investment today and lock in an 8 percent rate. How much money should he invest now in order to have the same amount of money in 20 years as Hailey?

$2,846.56

You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9 percent each year on your money, how much (in dollars) of the $32,000 must you invest today?

$20,692.24

Which of these statements is true?

The higher the default risk, the higher the interest rate that securities buyers will demand.

How are future values affected by changes in interest rates?

The higher the interest rate, the larger the future value will be.

How are present values affected by changes in interest rates?

The lower the interest rate, the larger the present value will be.

Which of the following is an important advantage to the issuer of a bond with a call provision?

They allow for refinancing opportunities.

A mixed stream is an stream of unequal periodic cash flows that reflect no particular pattern.

True

Asset Backed Security is a financial security with a value that is linked to another asset such as a stock traded in capital markets.

True

Future Value Due is a stream of level and frequent cash flows paid at the beginning of each time period.

True

Market Interest Rate Risk is the chance of a capital loss due to interest rate fluctuations over time.

True

Underwriters purchase new issued security from the company and resell them to the public.

True

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

asset-backed securities

When interest rates are lower, borrowers can

borrow more money.

Which of the following is NOT a money market instrument?

corporate bonds

When saving for future expenditures, we can add the _________blank of contributions over time to see what the total will be worth at some point in time.

future value

Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value

grows.

Primary market financial instruments include stock issues from firms allowing their equity shares to be publicly traded on the stock market for the first time. We usually refer to these first-time issues as which of the following?

initial public offerings