Mid Term Questions

An annuity will be deposited to an account every year that pays 12.5 percent rate of interest. After 11 annual deposits there will be $643,944 in the account. The present value of the annuity is

$176,267

You will receive $2,895 at year 89. What is its present value at the beginning of year 86 if the rate of interest is 4 percent?

$2,474.66

You deposit $289 in an account every month for 17 months that paid 4% rate of interest compounded monthly. The present value of the annuity is

$4,768.67

If the interest rate is 13%, how many years will it take to triple your investment?

8.99

Consider a corporate bond maturing on April 14, 2025 with a coupon rate of 5% and yield of 6%. What is the clean price of the bond on July 23, 2018?

945.22

Consider a corporate bond maturing on April 14, 2025 with a coupon rate of 5% and yield of 6%. What is the dirty price of the bond on July 23, 2018?

958.88

If the simple interest rate is 5 percent, how many years will it take to triple your investment?

40.00 years

Which investment option is less risky for one-year investment horizon: 1 year T-bill or 20-year T-bond?

1 year T-Bill

What is the future value of $756 at the end of 11 years, assuming continuously compounded interest rate of 9.8 percent?

2,221.73

Which of the following bonds is trading at a premium if market rate is 9%? a. Bond A: 7% coupon, 12 years maturity b. Bond B: 9% coupon, 12 years maturity c. Bond A: 11% coupon, 10 years maturity

Bond A: 11% coupon, 10 years maturity

An amount of $1,200 is deposited into an account that earns 5.5% interest. If equal withdrawals of $24 will be made each year, the number of years it will take to exhaust the account is

C. Account will never exhaust

During a recession, if FED injects money into the financial system by buying more Treasury securities, then the interest rate will increase. True or False

False

If both the level of annuity payments and the interest rate increase, then the present value of annuity may decrease, increase or stay the same.

True

If you buy a long-term non-callable bond and hold it until maturity, the coupon payments and the face value will not change, no matter what happens to the interest rate True or False?

True

In the wake of the start of an economic boom, if the firms expand their investment plans, then the interest rate will increase True or False

True

Longer maturity bonds are more risky than shorter maturity bonds, since it is more likely for any risk to happen in a longer time-period.

True

The higher the face value, the higher is the fair value of a bond. True or False?

True

The higher the interest rate, the higher is the Future value of annuity.

True

Find the future values of $400 paid each 6 months for 5 years at 12% compounded semiannually

a. 5,272.32.

Which of the following decreases YTM of a bond? a. If a bond's price increases, its YTM decreases. b. If a company's bonds are downgraded its YTM increases. c. the bond is more risky, then the bond's YTM would increase. d. YTM would increase

a. If a bond's price increases, its YTM decreases

If the interest rate increases, the future value also increases a. True b. False

a. True

. If the probability of default is zero and the bond cannot be called, then a bond's YTM is the bond's promised rate of return, which is the expected return. a. True b. False

a.True

Which of the following has the most reinvestment risk?

b. 1-year bond with 10% coupon

If the number of compounding intervals increases, then the future value of an amount will decrease. a. True b. False

b. False

If market interest rates rise after a bond issue, than the YTM of the bond decreases. a. True b. False

b.false