Midterm Exam #2 Financial Management

The effective annual rate equals the annual percentage rate when interest is compounded annually.

Which one of the following statements concerning interest rates is correct?

Time and present value are inversely related, all else held constant.

Which one of the following statements correctly defines a time value of money relationship?

A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal.

Which one of the following statements related to annuities and perpetuities is correct?

You should accept the second offer because it has the larger net present value.

You have some property for sale and have received two offers. The first offer is for $89,500 today in cash. The second offer is the payment of $35,000 today and an additional guaranteed $70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should you accept and why?

perpetuity

A Canadian consol is best categorized as a(n):

maturity

A bond's principal is repaid on the ________ date.

coupon

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment.

face value

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:

Project B is worth less today than Project A.

Project A has cash flows of $4,000, $3,000, $0, and $3,000 for Years 1 to 4, respectively. Project B has cash flows of $2,000, $3,000, $2,000, and $3,000 for Years 1 to 4, respectively. Which one of the following statements is correct assuming the discount rate is positive?

Project X has both a higher present and a higher future value than Project Y.

Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate?

effective annual

The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the _____ rate.

yield to maturity

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the:

market price

The current yield is defined as the annual interest on a bond divided by the:

annual percentage rate

The interest rate that is most commonly quoted by a lender is referred to as the: