EXAM 1 FINA362

An agency issue is most apt to develop when:

the control of a firm is separated from the firm's ownership

Wine and Roses, Inc., offers a bond with a coupon of 8.5 percent with semiannual payments and a yield to maturity of 8.34 percent. The bonds mature in 17 years. What is the market price of a $1,000 face value bond?

$1,014.40

A company has a pension liability of $440,000,000 that it must pay in 29 years. If it can earn annual interest rate of 4 percent, how much must it deposit today to fund this liability?

$141,086,622.46

Thomas invests $123 in an account that pays 4 percent simple interest. How much money will Thomas have at the end of 6 years?

$152.52

Marko Inc., is considering the price of ABC Co. Marko believes that ABC Co. can generate cash flows of $6,200, $11,200, and $17,400over the next three years, respectively. After that time, they feel the business will be worthless. Marko has determined that a rate of return of 10 percent is applicable to this potential purchase. What is Marko willing to pay today to buy ABC Co.?

$27,965.44

Your grandparents would like to establish a trust fund that will pay for you and hers $220,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 4.3 percent, how much must your grandparents deposit today?

$5,116,279.07

What is the future value of $1,900 per year for 21 years at an interest rate of 6.15 percent?

$77,298.51

Jenny Enterprises has just entered a lease agreement for a new manufacturing facility. Under the terms of the agreement, the company agreed to pay rent of $11,500 per month for the next 8 years with the first payment due today. If the APR is 6.24 percent compounded monthly, what is the value of the payments today?

$871,871.85

You can invest in an account that pays simple interest or an account that pays compound interest. In either case, you plan to invest $2,700 today and both accounts have an annual interest rate of 6 percent. How much more interest will you receive in the 9th year in the account that pays compound interest?

$96.20

Bob had bought some land costing $15,790. Today, that same land is valued at $45,617. How long has Bob owned this land if the price of the land has been increasing at 4 percent per year?

27.05 years

There is a zero coupon bond that sells for $4,357.54 and has a par value of $10,000. If the bond has 17 years to maturity, what is the yield to maturity? Assume semiannual compounding.

4.95%

You made an investment of $9,500 into an account that paid you an annual interest rate of 2.1 percent for the first 4 years and 6.5 percent for the next 12 years. What was your annual rate of return over the entire 16 years?

5.38%

Footsteps Co. has a bond outstanding with a coupon rate of 5.8 percent and annual payments. The bond currently sells for $939.96, matures in 16 years, and has a par value of $1,000. What is the YTM of the bond?

6.41%

An investment had a nominal return of 11 percent last year. The inflation rate was 3 percent. What was the real return on the investment?

7.77%

All else being equal, a convertible bond will have a higher yield at issue (coupon rate) than a non convertible bond.

False

Given the same APR, when the frequency of compounding interest increases, we will have a lower EAR.

False

The primary market is where the corporation can get money from issuing securities.

True

Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management

A Sole Proprietorship

has its profits taxed as personal income

A Corporation

is a legal entity separate from its owners