finance quiz

5.53 percent

New Markets has $1,000 face value bonds outstanding that pay interest semiannually, mature in 20 years, and have a 5.8 percent coupon. The current price is quoted at 103.25. What is the yield to maturity?

$4,620,444.63

Oakville Trucking just signed a $5.0 million contract. The contract calls for a payment of $1.25 million today, $1.75 million one year from today, and $2.0 million two years from today. What is this contract worth today at a discount rate of 7.25 percent?

The entire bond is repaid on the maturity date.

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

13.96 percent

One year ago, you purchased a $1,000 face value bond for a clean price of $980. The bond currently has seven years remaining until maturity, pays a coupon payment of $45 every six months, and has a yield to maturity of 6.87 percent. What is the percentage change in the bond price over the past year?

6.62 percent

Warson Motors wants to raise $2 million by selling 20-year coupon bonds at par. Comparable bonds in the market have a coupon rate of 6.3 percent, semiannual payments, 20 years to maturity, and are selling at 96.5 percent of par. What coupon rate should Warson Motors set on its bonds?

The bond must be priced at par.

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive.

$1,021.00

What is the price of a $1,000 face value bond if the quoted price is 102.1?

Face value

What is the principal amount of a bond that is repaid at the end of the loan term called?

Sinking fund

What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

10-year, zero coupon

Which one of the following bonds is the most sensitive to changes in market interest rates?

Equal annual payments for life

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

Timing of the annuity payments

Which one of the following features distinguishes an ordinary annuity from an annuity due?

6 percent compounded daily

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

$25 paid weekly for 1 year, starting one week from today

Which one of the following is an ordinary annuity, but not a perpetuity?

C × ({1 − [1 / (1 + r)t]} / r)

Which one of the following is the annuity present value formula?

Auto loan payment

Which one of the following qualifies as an annuity payment?

Default risk premium

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?

An annuity due has payments that occur at the beginning of each time period.

Which one of the following statements concerning annuities is correct?

The EAR, rather than the APR, should be used to compare both investment and loan options.

Which one of the following statements is correct?

A discount bond has a coupon rate that is less than the bond's yield to maturity.

Which one of the following statements is true?

Zero coupon

Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one payment to bondholders?

Trust income of $1,200 a year forever

Which one of these is a perpetuity?

$1,019.63

A $1,000 face value bond currently has a yield to maturity of 6.03 percent. The bond matures in thirteen years and pays interest semiannually. The coupon rate is 6.25 percent. What is the current price of this bond?

$982.05

A $1,000 face value bond currently has a yield to maturity of 7.14 percent. The bond matures in sixteen years and pays interest semiannually. The coupon rate is 6.95 percent. What is the current price of this bond?

4.50 percent

A $1,000 face value bond is currently quoted at 100.8. The bond pays semiannual payments of $22.50 each and matures in six years. What is the coupon rate?

6.34 percent

A 15-year, annual coupon bond is priced at $984.56. The bond has a $1,000 face value and a yield to maturity of 6.5 percent. What is the coupon rate?

an ordinary annuity.

A 30-year home mortgage is a classic example of:

2.04 percent

A U.S. Treasury bond pays 2.80 percent interest. You are in the 27 percent marginal tax bracket. What is your after tax yield on this bond?

5.40 percent

A bond has a $1,000 face value, a market price of $1,023.32, and pays interest payments of $54.00 every year. What is the coupon rate?

6.95 percent

A bond has a $1,000 face value, a market price of $989, and pays interest payments of $69.50 every year. What is the coupon rate?

5.65; 5.73

A bond has a coupon rate of 5.65 percent, a face value of $1,000, semiannual payments, and sells at par. The current yield is _____ percent and the effective annual yield is _____ percent.

$31.50

A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments. The bond quote is 100.8. What is the amount of each coupon payment?

9.05 percent

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

7.77 percent

A bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent. What was the actual nominal rate of return?

coupon rate.

A bond's annual interest divided by its face value is referred to as the:

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

A call provision grants the bond issuer the:

will be greater than 12.9 percent.

A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account:

4.95 percent

A fourteen-year, semiannual coupon bond is selling for $898.56. The bond has a face value of $1,000 and a yield to maturity of 6.03 percent. What is the coupon rate?

charge interest annually.

A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must:

Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent, and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds?

9.50 percent

Which statement is true?

All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity.

increase the time period.

All else held constant, the future value of an annuity will increase if you:

yield to maturity decreases.

All else held constant, the present value of a bond increases when the:

decrease the annuity payment.

All else held constant, the present value of an annuity will decrease if you:

7.28 percent

American Hat has $1,000 face value bonds outstanding with a market price of $1,150. The bonds pay interest semiannually, mature in 8 years, and have a yield to maturity of 5.98 percent. What is the current yield?

coupon bond's yield to maturity to decrease.

An unexpected decrease in market interest rates will cause a:

effective annual rate.

Anna pays .85 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded annually, the rate would be referred to as the:

highest effective annual rate.

Assume all else is equal. When comparing savings accounts, you should select the account that has the:

Project 2, because the present value of the cash inflows exceeds those of Project 1 by $18,598.33

Chandler Tire Co. is trying to decide which one of two projects it should accept. Both projects have the same start-up costs. Project 1 will produce annual cash flows of $52,000 a year for six years. Project 2 will produce cash flows of $48,000 a year for eight years. The company requires a 15 percent rate of return. Which project should the company select and why?

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

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 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?

Pure discount

Cindy is taking out a loan today. The cash amount that she is receiving 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?

11.35 years

Cromwell is acquiring some land for $1,200,000 in exchange for semiannual payments of $75,000 at an interest rate of 6.35 percent. How many years will it take Cromwell to pay for this purchase?

20.97 percent

Forni's Furniture is offering a bedroom suite for $2,700. The credit terms are 60 months at $73.00 per month. What is the interest rate on this offer?

$240,885.11

Freya plans to invest $3,200 a year for 25 years starting at the end of this year. How much will this investment be worth at the end of the 25 years if she earns an average annual rate of return of 8.2 percent?

$395,904.99

How much money does Yvette need to have in her retirement savings account today if she wishes to withdraw $36,000 a year for 30 years? She expects to earn an average rate of return of 8.25 percent.

$3,545

Jake owes $3,990 on a credit card with an APR of 13.9 percent. How much more will it cost him to pay off this balance if he makes monthly payments of $50 rather than $60? Assume he does not charge any further purchases.

Annuity due

Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?

18,086.88

Jorge is considering an investment that will pay $4,650 a year for five years, starting one year from today. What is the maximum amount he should pay for this investment if he desires a rate of return of 9.0 percent?

$419,766.30

Karley's setting aside $32,000 each quarter, starting today, for the next three years for an expansion project. How much money will the firm have at the end of the three years if it can earn an average of 5.45 percent on its savings?

$1,945.19

Krystal plans to save $500 at the end of Year 1, $600 at the end of Year 2, and $800 at the end of Year 3. If she earns 2.8 percent on her savings, how much money will she have saved at the end of Year 3?

$1,020.26

Lake Industries bonds have a face value of $1,000, a coupon rate of 7.2 percent, semiannual interest payments, and mature in 15 years. What is the current price of these bonds if the yield to maturity is 6.98 percent?

4.63 percent

Last year, you earned a rate of return of 5.89 percent on your bond investments. During that time, the inflation rate was 1.2 percent. What was your real rate of return?

annual percentage rate.

Lee pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

Amortized

Letitia borrowed $6,000 from her bank two years ago. The loan term is four years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have?

7.96 years

Lionheart Trucking recently purchased a new truck costing $178,000. The firm financed this purchase at 6.6 percent interest with monthly payments of $2,400. How many years will it take the firm to pay off this debt?

debenture

Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:

424,786.07

Moonlight Industries just signed a sales contract with a new customer. JK will receive annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the firm earns 3.75 percent on its savings?

equal payments and an infinite life.

Perpetuities have:

5.56 percent

RB Farworth will pay you $2,500 a year for 15 years in exchange for $25,000 today. What interest rate will you earn on this annuity?

$105,608.11

Retreaded Tires plans to save $23,500, $24,500, $26,500, and $28,000 at the end of each year for Years 1 to 4, respectively. If it earns 2.1 percent on its savings, how much will the firm have saved at the end of Year 4?

pure discount loan.

Scott borrowed $2,500 today at an APR of 7.4 percent. The loan agreement requires him to repay $2,685 in one lump sum payment one year from now. This type of loan is referred to as a(n):

6.66 percent

Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and a market price of $1,023. At this price, the bonds yield 6.4 percent. What must be the coupon rate on these bonds?

yield to maturity

The market-required rate of return on a bond that is held for its entire life is called the:

$931.01

The 5.3 percent bond of Dominic Cyle Parts has a face value of $1,000, a maturity of 12 years, semiannual interest payments, and a yield to maturity of 6.12 percent. What is the current market price of the bond?

6.35; 6.39; 6.49

The 6.3 percent, semi-annual coupon bonds of PE Engineers mature in 13 years and have a price quote of 99.2. These bonds have a current yield of _____ percent, a yield to maturity of _____ percent, and an effective annual yield of _____ percent.

$32.00

The 6.4 percent bond of Berberich, Inc. has a yield to maturity of 6.9 percent. The bond matures in eleven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

$980.82

The 6.9 percent bond of Peters Pickles has a face value of $1,000, a maturity of 15 years, semiannual interest payments, and a yield to maturity of 7.11 percent. What is the current market price of the bond?

6.06 percent

The 7 percent semiannual coupon bonds of Over The Counter, Inc., are selling for $1,102.25. The bonds have a face value of $1,000 and mature in 18 years. What is the yield to maturity?

$36.00

The 7.2 percent bond of Blackford, Inc. has a yield to maturity of 7.3 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

a perpetuity.

The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships are:

call price exceeds the par value.

The call premium is the amount by which the:

current market price.

The current yield on a bond is equal to the annual interest divided by the:

protect the bondholders.

The primary purpose of bond covenants is to:

repay bonds early either through purchases or calls.

The purpose of a bond sinking fund is to:

nominal rate.

The rate of return an investor earns on a bond prior to adjusting for inflation is called the:

Fisher effect.

The relationship between nominal returns, real returns, and inflation is referred to as the:

in terms of the interest payment made each period.

The stated interest rate is the interest rate expressed:

indenture.

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

greater than both the current yield and the coupon rate.

The yield to maturity on a discount bond is:

78.195.78

Tiger Trucking Company is considering a project that will produce cash inflows of $18,000 at the end of Year 1, $32,000 in Year 2, and $45,000 in Year 3. What is the present value of these cash inflows at a discount rate of 9 percent?

$5,614.90

Varian wants to have $500,000 in an investment account six years from now. The account will pay .58 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?

Interest-only

Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is six years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan does he have?

annuity

Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms?

The present value of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due.

You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which one of the following statements is correct given these three investment options?

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

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?

4.94 percent

You have just won the lottery! You can either receive $183,555 per year for 20 years or $2,300,000 as a lump sum payment today. What is the interest rate on the annuity option?

Interest-only

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?

1,936.24

You want to purchase a new condominium that costs $325,000. Your plan is to pay 20 percent down in cash and finance the balance over 15 years at 4.1 percent. What will be your monthly mortgage payment including principal and interest?

$226.78

Your grandfather started his own business 52 years ago. He opened an investment account at the end of his third month of business and contributed $x. Every three months since then, he faithfully saved another $x. His savings account has earned an average rate of 5.73 percent annually. Today, his account is valued at $289,209.11. How much did your grandfather save every three months assuming he saved the same amount each time?