CHAPTER 3,4,5,6
A smooth-talking used-car salesman who smiles considerably is offering you a great deal on a "pre-owned" car. He says, "For only 88 annual payments of 2,400, this beautiful 1998 Honda Civic can be yours." If you can borrow money at 10%, what is the price of this car? Assume the payment is made at the end of each year.
$12803.82
Your parents have promised you possible deposits of $1,050, $1,500 and $2,500 at the end of the next three years, respectively. If your parents can earn 6% per year, what size of a one-time deposit would they have to make today in order to keep their promise?
$4,424.61
You invest $600 an an annual rate of 7% for fifteen years. How much more interest would you earn in year 11 with compound vs. simple interest and for the whole 15 years?
$40.62; $425.42
Big House Nursery Inc. has issued 20year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 10%. The current price of the bond is ________.
$829.73
Five years ago, Simpson Warehouses Inc. issued twenty−five−year 10% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Thompson bonds is now 12%. Given this information, what is the price today for a Thompson Tarps bond?
$850.61
The Rogue Outfitters Corporation $1,000 par value, 15% annual coupon bonds, have 6 years remaining to maturity and are currently selling for $938.45. What is the firm's yield to maturity for these bonds?
16.70%
For an 18-year fixed payment loan for $200,000 with an annual interest rate of 5.20% and making QUARTERLY payments, what percent of your first payment would apply to the principal?
39.45%
For a nominal interest rate of 10% and inflation of 3%, according to the Fisher Effect, what would be the approximate real rate?
7%
A security that is selling for $3,000 and promises to pay annual interest or $250 forever would have an annual yield of
8.33%
You plan to buy a new car when you graduate in 2 years. The car you want currently costs $25,000 and car prices are expected to increase at an annual rate of 4% per year. What will your car cost by the time you graduate? Suppose you wait another 3 years after graduation to make your purchase?
$27,040; $30,416
You deposit $150 at the end of each of the next 12 years earning 9.00% per year. What would your balance be at the end of the 12 years?
$3,021.11
A financial planner recommends that you have accumulated $2.0 million by the time that you retire in 25 years. If you can earn an annual rate of return of 5%, how much must you invest for each of the next 25 years in order to achieve this goal?
$41,905
Your parents tell you that if you apply yourself and earn a minimum grade of B - in Finance 3101, they will reward you by depositing in your account $1,050 next year, $1,500 the following year and $2,500 the year after that. If you can earn an annual rate of 4%, how much would you have in your account immediately after your parents' final deposit?
$5,195.68
You have $675 today which is enough to buy 375 bottles of Diet Pepsi. If the price of Diet Pepsi is expected to increase by 4% over the next year, what approximate nominal rate would you have to earn to be able to buy 400 bottles of Diet Pepsi next Year?
10.67%
A new CEO promises to increase company sales by 9% per year from its current level of $3,458,613 to a target level of $12 million. How long would it take for the new CEO to achieve his goal?
14 years
Upstate University charges $15 comma a year in graduate tuition. Tuition rates are growing at 22% each year. You plan to enroll in graduate school in four years. What is your expected graduate tuition in four years?
16236.48
Rogue Recovery Inc. wishes to issue new bonds but is uncertain how the market would set the yield to maturity. The bonds would be 20m−year, 7% annual coupon bonds with a $1,000 par value. The firm has determined that these bonds would sell for $1,050 each. What is the yield to maturity for these bonds?
6.54%
Which rating of corporate bond yields in chapter 5 of our textbook is compared to yields on T-bills and T-bonds for the period 2000 - 2013?
AAA
What is the EAR if the APR is 10.52% and compounding is daily?
Slightly above 11.09%
Which of the following statements about the relationship between yield to maturity and bond prices is FALSE?
When interest rates go up, bond prices go up.
When the ________ is less than the yield to maturity, the bond sells at a/the ________ the par value.
coupon rate; discount to
Ten years ago Salmon Acqua Farming Inc. issued twenty−five−year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have fallen and the yield to maturity on the Bacon bonds is now 7%. Given this information, what is the price today for such a bond?
$1,091.08
Portland Brewery Inc. recently issued 30−year $1,000 face value, 12% annual coupon bonds. The market discount rate for this bond is only 7%. What is the current price of this bond?
$1,620.45
What is the EAR if the APR is 6% and compounding is quarterly?
6.14%
RadicaL CREATIONS Inc. just issued zero−coupon bonds with a par value of $1,000. If the bond has a maturity of 15 years and a yield to maturity of 10%, what is the current price of the bond assuming annual compounding?
$239.39
If you can earn 6% per year, how much would you have to invest today to be able to purchase the car in #3 in two years? In five years? (You plan to buy a new car when you graduate in 2 years. The car you want currently costs $25,000 and car prices are expected to increase at an annual rate of 4% per year. What will your car cost by the time you graduate? Suppose you wait another 3 years after graduation to make your purchase?)
$24,066; $22,729
You borrow $200,000 for 18 years at an annual rate of 5.20%.. What would be your fixed QUARTERLY loan payment?
$4,294
Draw time lines from your perspective for the following: (a) You lend $350 two years from now and are repaid a total of $497 seven years from now; (b) You borrow $200 today and repay a total of $248 four years from now.
-$106 at year one.
A widget seller sold 1,035 widgets in 2007 and 687 in 2015. What was the annual rate of sales of widgets over this period?
-4.99%
If your investment doubles in 6 3/4 years, what approximate annual rate of return would you have earned? If you could earn an annual rate of 7.50%, approximately how long would it take for your investment to double?
10.67%; 9.60 years
Which Figures in Chapter 5 of our textbook illustrate the history of inflation and 3-month T-bill yields, respectively?
5.4; 5.5
You would liike to increase your purchasing power next year by about 4%. If you expect prices to increase at a rate of 2% over the next year, what approximate increase would you need in your salary in order to achieve your desired increase in purchasing power?
6%
Given the following: default premium = 0.50 % pts.; inflation 3.75%; real rate = 1.25%; maturity premium = 1.15% pts., what would be the nominal rate?
6.65%