Fin 3100 exam 2

When real property is used as collateral for a bond, it is termed a/an ________. A) indenture B) mortgaged security C) debenture D) senior bond

B) mortgaged security

The number of periods for a consumer loan (n) is equal to the ________. A) number of years times compounding periods per year B) number of years in a period C) number of compounding periods D) number of years

A) number of years times compounding periods per year

"Junk" bonds are a street name for ________ grade bonds. A) speculative B) extremely speculative C) investment D) speculative and investment

A) speculative

The ________ is the return the bondholder receives on the bond if held to maturity. A) yield to maturity B) coupon rate C) coupon D) par rate

A) yield to maturity

Delagold Corporation is issuing a zero-coupon bond that will have a maturity of fifty years. The bond's par value is $1,000, and the current annual yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention? A) $25.19 B) $250.19 C) $750.00 D) $1,000.00

A) $25.19

Five years ago, CleanEnergy Corporation issued an 10% coupon per year (paid semi-annually), 15-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 8%. What is the current price per bond? A. $1291.5 B. $1135.9 C. $977.8 D. $1058.3

B. $1135.9

Theresa borrows $800 today in exchange for one payment of $1,000 five years from now. This is an example of a(n): A. interest-only loan. B. pure discount loan. C. quoted rate loan. D. compounded loan. E. amortized loan.

B. pure discount loan.

You have saved $44,000 for college and wish to use $12,000 per year. If you use the money as an ordinary annuity and earn 5.15% on your investment, how many years will your annuity last? A) 4.27 years B) 3.59 years C) 4.17 years D) 3.36 years

C) 4.17 years

Your parents have an investment portfolio of $450,000, and they wish to take out cash flows of $60,000 per year as an ordinary annuity. How long will their portfolio last if the portfolio is invested at an annual rate of 4.50%? A) 8.00 years B) 10.14 years C) 9.10 years D) 9.35 years

D) 9.35 years

Which of the following is NOT a form of perpetuity? A) A British consol bond B) Preferred stock that pays the same dividend forever C) A philanthropic endowment fund that pays the same charitable amount every year forever D) All are examples of perpetuities.

D) All are examples of perpetuities.

MicroMedia Inc. $1,000 par value bonds are selling for $1,265. Which of the following statements is TRUE? A) The bond market currently requires a rate (yield) less than the coupon rate. B) The bonds are selling at a premium to the par value. C) The coupon rate is greater than the yield to maturity. D) All of these are true.

D) All of these are true.

Which of the following is NOT an example of annuity cash flows? A) Regular equal monthly rent payments B) Equal annual deposits into a retirement account C) The $50 of gasoline you put into your car every two weeks on pay day D) All of these examples are annuity cash flows.

D) All of these examples are annuity cash flows.

A company selling a bond is ________ money. A) taking B) lending C) reinvesting D) borrowing

D) borrowing

The main variables of the time value of money (TVM) equation are ________. A) present value, future value, perpetuity, interest rate, and payment B) present value, future value, perpetuity, interest rate, and principal C) present value, future value, time, annuity, and interest rate D) present value, future value, time, interest rate, and payment

D) present value, future value, time, interest rate, and payment

Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year ________. A) you will be able to consume fewer goods B) you will be able to buy fewer goods or services C) you will be able to buy the same amount of goods or services D) you will be able to buy more goods or services

D) you will be able to buy more goods or services

________ are always unsecured bonds. A) Callable bonds B) Mortgage bonds C) Debentures D) Junior debt bonds

C) Debentures

A ________ is an unsecured bond. A) senior bond B) debenture C) bond indenture D) mortgage bond

B) debenture

consider a three-year amortized loan of $10,000. The interest rate is 10% per year and the terms of the loan call for equal payments at the end of each year. Among the three principal repayments, the principal repayment at the end of year 3 is the lowest. a. True b. False

b. False

A finite series of equal payments that occur at regular intervals is called a(n) . a. discount bond. b. annuity. c. consol. d. perpetuity.

b. annuity.

consider a three-year amortized loan of $10,000. The interest rate is 10% per year and the terms of the loan call for equal payments at the end of each year. How much is the loan balance the end of year 1? a. $7957.70 b. $5081.24 c. $6978.85 d. $4681.31

c. $6978.85

When the ________ is less than the yield to maturity, the bond sells at a/the ________ the par value. A) coupon rate; premium over B) coupon rate; discount to C) time to maturity; discount to D) time to maturity; same price as

B) coupon rate; discount to

The ________ is the written contract between the bond issuer and the bondholder. A) debenture B) indenture C) sinking fund D) corpus

B) indenture

A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future. A) long-term equity B) long-term debt C) short-term debt D) short-term equity

B) long-term debt

The Cougar Corporation has issued 20-year semi-annual coupon bonds with a face value of $1,000. If the annual coupon rate is 10% and the current annual yield to maturity is 12%, what is the firm's current price per bond? A) $850.61 B) $849.54 C) $1,170.27 D) $1,171.59

B) $849.54

Suppose you postpone consumption and invest at 6% when inflation is 2%. What is the approximate real rate of your reward for saving? A) 3% B) 4% C) 5% D) 6%

B) 4%

Assume that Ray is 20 years old and has 45 years for saving until he retires. He expects an APR of 6% on his investments. How much does he need to save if he puts money away monthly in equal end-of-the-month amounts to achieve a future value of $2,000,000 dollars in 45 years' time? A. $232.17 B. $548.83 C. $725.69 D. $1,104.75

C. $725.69

You are running short of cash and really need to pay your rent. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $1,000 if you pay them back $1,200 in one week. It seems like a good idea to you because you don't want to sell your car and you are sure you will be able to pay the money back in a week. What is the APR on this loan? A. 240% B. 520% C. 1040% D. 20%

C. 1040%

Severson has an annuity due that pays $400 per year for 20 years. What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized. A) $9,000.00 B) $16,846.35 C) $9,675.00 D) $18,621.01

D) $18,621.01

You are running short of cash and really need to pay your rent. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $5,000 if you pay them back $6,000 in one week. It seems like a good idea to you because you don't want to sell your car and you are sure you will be able to pay the money back in a week. What is the APR on this loan? A) 10% B) 120% C) 420% D) 1040%

D) 1040%

Five years ago, CleanEnergy Corporation issued an 12% coupon per year (paid semi-annually), 20-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 8%. What is the current price per bond? A. $1088.75 B. $1258,99 C. $1483.81 D. $1345.84

D. $1345.84

Lily invested $10,000 ten years ago with an insurance company that has paid her 10 percent (APR), compounded semi-annually (twice per year). How much interest did Lily earn over the ten years? A. $8,992 B. $20,177 C. $17,822 D. $16,533

D. $16,533

Which one of the following has the highest effective annual rate? A. APR of 6 percent compounded annually B. APR of 6 percent compounded semi-annually C. APR of 6 percent compounded quarterly D. APR of 6 percent compounded monthly E. APR of 6 percent compounded daily

E. APR of 6 percent compounded daily

Assume that Ray is 38 years old and has 27 years for saving until he retires. He expects an APR of 7.5% on his investments. How much does he need to save if he puts money away monthly in equal end-of-the-month amounts to achieve a future value of $1,200,000 dollars in 27 years' time? A) $1,148.81 B) $588.92 C) $2,264.42 D) $3392.22

A) $1,148.81

Given the following cash flows, what is the future value at year ten when compounded at an interest rate of 4.0%? Year. Cash Flow 7 $4,000 8 $3,000 9 $2,000 10 $1,000 A) $10,824.26 B) $30,000.00 C) $16,864.17 D) $25,267.31

A) $10,824.26

You have an annuity of equal annual end-of-the-year cash flows of $500 that begin three years from today and last for a total of ten cash flows. Using a discount rate of 4%, what are those cash flows worth in today's dollars? A) $3,749.49 B) $3,899.47 C) $3,957.61 D) $4,055.45

A) $3,749.49

You are saving money for a down payment on a new house. You intend to place $7,500 at the end of each year for three years into an account earning 5% per year. At the end of the fourth year, you will place $10,000 into this account. How much money will be in the account at the end of the fourth year? A) $34,825.94 B) $26,873.08 C) $39,000.00 D) $37,918.00

A) $34,825.94

Assume a five-year equal payment amortization schedule with an annual interest rate of 7% and annual payments. If the beginning principal is $8,000, then the first interest payment will be how large? A) $560.00 B) $960.00 C) $1,219.28 D) There is not enough information to answer this question.

A) $560.00

The future value three years from today of a $200 three-year annuity due compounded at a rate of 10% is equal to ________. A) $728.20 B) $662.00 C) $266.20 D) $600.00

A) $728.20

Twenty years ago Bison Enterprises Inc. issued thirty-year 9% 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 firm's bonds is now 11%. Given this information, what is the price today for a bond from this issue? A) $882.22 B) $1,116.54 C) $1,000 D) $914.41

A) $882.22

Ten years ago Pancake House Inc. issued twenty-five-year 8% 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 Bacon bonds is now 9%. Given this information, what is the price today for such a bond? A) $919.39 B) $1,000 C) $901.77 D) $1.085.59

A) $919.39

Becky is seeking to expand her stamp collection. Each year, stamps increase in price at a seven percent rate. She believes that if she invests her money for one year, she should be able to buy 24 stamps for what 23 stamps would cost today. What is her real interest rate or reward for waiting? A) 4.35% B) 3.35% C) 2.25% D) 1.00%

A) 4.35%

The real rate is 1.25% and inflation is 5.25%. What is the approximate nominal rate? A) 6.50% B) 3.25% C) 1.25% D) 5.25%

A) 6.50%

Five years ago, CleanEnergy Corporation issued an 12% coupon per year (paid semi-annually), 25-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 10%. What is the current price per bond? A. $1171.59 B. $1057.73 C. $995.87 D. $1247.67

A. $1171.59

Tony is offering Phil two repayment plans for a long overdue loan. Offer 1 is a visit from an enforcer and the debt is due in full at once. Offer 2 is to pay back $5,000 at the end of each year at 10% interest rate until the loan principal is paid off. Phil owes Tony $20,000. How long will it take for Phil to pay off the loan if he takes Offer 2? A. 5.36 years B. 7.83 years C. 4 years D. 6.43 years

A. 5.36 years

Quality Production Products Inc. has issued 20-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 12% and the yield to maturity today is 10%, what is the firm's current price per bond? A) $1,000.00 B) $1,171.59 C) $1,362.74 D) $934.20

B) $1,171.59

Fifteen years ago McDemott's Motels Inc. issued twenty-five-year 10% 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 firm's bonds is now 6%. Given this information, what is the price today for such a bond? A) $1,000 B) $1,294.40 C) $914.41 D) $1,091.08

B) $1,294.40

You put 20% down on a home with a purchase price of $250,000. The down payment is thus $50,000, leaving a balance owed of $200,000. A bank will loan you this remaining balance at 3.9% APR. You will make monthly end-of-the-period payments with a 30-year payment schedule. What is the monthly annuity payment under this schedule? A) $5,25.18 B) $943.34 C) $712.41 D) $830.53

B) $943.34

You just entered into a $150,000 30-year home mortgage at an annual interest rate of 4.25% making monthly payments of $737.91. Suppose you add an additional payment of $295.97 each month to the $737.91 house payment making your total monthly payments equal to $1,033.88. This extra amount is applied against the principal of the original loan. How long will it take you to pay off your loan of $150,000? A) It will take about 216 months. B) It will take about 204 months. C) It will take about 265 months. D) It will take about 186 months.

B) It will take about 204 months.

Which of the following is NOT an example of annuity cash flows? A) The university tuition bill you pay every month that is always the same B) The grocery bill that changes every week C) The $3.50 you pay every morning for a bagel and coffee as you run to your first morning class D) All of these examples are annuity cash flows.

B) The grocery bill that changes every week

Monthly interest on a loan is equal to ________. A) the ending balance times the periodic interest rate B) the beginning balance times the monthly interest rate C) the beginning balance times the APR D) the ending balance times the annual percentage rate

B) the beginning balance times the monthly interest rate

Five years ago, Thompson Tarps 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 annual yield to maturity on the Thompson bonds is now 12%. Given this information, what is the price today for a Thompson Tarps bond? A) $843.14 B) $850.61 C) $1,181.54 D) $1,170.27

B) $850.61

Assume you just bought a new boat and now have a boat loan to repay. The amount of the principal is $68,000, the loan is at 6.75% APR, and the monthly payments are spread out over 7 years. What is the monthly loan payment? A) $1,225.36 B) $809.52 C) $1,018.01 D) $1,206.58

C) $1,018.01

Severson has an annuity due that pays $400 per year for 20 years. What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized. A) $9,000.00 B) $9,675.00 C) $18,621.01 D) $16,846.35

C) $18,621.01

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 if it is priced in the conventional manner? A) $1,000 B) $239.39 C) $231.38 D) This question cannot be answered because the coupon payment information is missing.

C) $231.38

The ________ is the regular interest payment of the bond. A) coupon rate B) par C) coupon D) dividend

C) coupon

Four years ago, CleanEnergy Corporation issued an 10% coupon per year (paid semi-annually), 15-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 12%. What is the current price per bond? A. $911.56 B. $991.84 C. $879.58 D. $759.17

C. $879.58

You put 20% down on a home with a purchase price of $250,000. The down payment is thus $50,000, leaving a balance owed of $200,000. The bank will loan the remaining balance at 3.91% APR. You will make annual payments with a 30-year payment schedule. What is the annual annuity payment under this schedule? A) $11,009.49 B) $6,666.67 C) $18,100.23 D) $11,439.96

D) $11,439.96

Your company just sold a product with the following payment plan: $40,000 today, $35,000 next year, and $30,000 the following year. If your firm places the payments into an account earning 6% per year, how much money will be in the account after collecting the last payment? A) $85,000 B) $94,074 C) $118,767 D) $112,044

D) $112,044

What if Jennifer were to invest $2,750 today, compounded semiannually, with an annual interest rate of 5.25%. What amount of interest will Jennifer earn in one year? A) $84.27 B) $525.27 C) $2,896.27 D) $146.27

D) $146.27

The furniture store offers you no-money-down on a new set of living room furniture. Further, you may pay for the furniture in three equal annual end-of-the-year payments of $750 each with the first payment to be made one year from today. If the discount rate is 5%, what is the present value of the furniture payments? A) $2,673.01 B) $2,214.27 C) $2,333.39 D) $2,042.44

D) $2,042.44

Lily invested $10,000 seven years ago with an insurance company that has paid her 4 percent (APR), compounded semi-annually (twice per year). How much interest did Lily earn over the 7 years? A. $1,674.43 B. $2,335.94 C. $4,592.61 D. $3,194.79

D. $3,194.79

Susan's goal is to retire with $500,000 in her retirement account. The local bank advertises an APR of 6% with monthly compounding on retirement fund accounts. If she retires in 30 years how much should Susan save each month to reach her goal? A. $387.71 B. $644.92 C. $555.74 D. $497.75

D. $497.75

Suppose you postpone consumption and invest at 14% when inflation is 2%. What is the approximate real rate of your reward for saving? A. 10% B. 11% C. 9% D. 12%

D. 12%

Tony is offering Phil two repayment plans for a long overdue loan. Offer 1 is a visit from an enforcer and the debt is due in full at once. Offer 2 is to pay back $5,000 at the end of each year at 20% interest rate until the loan principal is paid off. Phil owes Tony $20,000. How long will it take for Phil to pay off the loan if he takes Offer 2? A. 4.00 years B. 6.23 years C. 7.27 years D. 8.83 years E. It will never be paid off

D. 8.83 years

If your nominal rate of return is 6.59 percent and the inflation rate is 2.0 percent, what is the real rate of return? A) 8.72% B) 4.59% C) 7.59% D) 5.15% E) 4.50%

E) 4.50%

You are comparing two separate investments. Each one is for a period of 10 years and pays $2,500 a year. You require a 10 percent return on these investments. Investment A pays at the beginning of each year and investment B pays at the end of each year. Given this situation, which one of the following statements is accurate? A. Both investments are equally valuable today. B. Investment B is worth more today because of the timing of its cash flows. C. Investment A is worth more today because you will receive ten payments whereas investment B only pays nine payments. D. Investment A has a higher present value and a lower future value than investment B. E. Investment A has both a higher present values and a higher future value than investment B

E. Investment A has both a higher present values and a higher future value than investment B

Susan's goal is to retire with $500,000 in her retirement account. The local bank advertises with an interest rate of 1% per month and monthly compounding on retirement fund accounts. If she retires in 30 years how much should Susan save each month to reach her goal? a. $143.06 b. $1,500.25 c. $454.76 d. $222.24

a. $143.06

You are saving up for retirement and decide to deposit $3,000 each year for the next 20 years, starting today (annuity due), into an account which pays a rate of interest of 8% per year. What is the total value of your investments in the account 20 years from today? a. $148,268.76 b. $151,418.05 c. $126,916.73 d. $137,285.89

a. $148,268.76

The Canadian Government has once again decided to issue a consol (a bond with a never- ending interest payment and no maturity date). The bond will pay $60 in interest each year (at the end of the year), but it will never return the principal. The current discount rate for Canadian government bonds is 4%. What should this consol bond sell for in the market? a. $6000 b. $600 c. $8,000 d. $1,500 e. $3,000

d. $1,500

consider a three-year amortized loan of $10,000. The interest rate is 10% per year and the terms of the loan call for equal payments at the end of each year. How much is the interest payment at the end of year 1? a. $500 b. $2000 c. $3000 d. $1000

d. $1000

You want to buy a new Tesla car for $100,000. The contract is in the form of a 60-month annuity due at a monthly interest rate of 1%. What will your monthly payment be? a. $1000 b. $1557.87 c. $2224.45 d. $2202.42

d. $2202.42

Present value calculations do which of the following? A) Discount all future cash flows back to the present B) Compound all future cash flows into the future C) Compound all future cash flows back to the present D) Discount all future cash flows into the future

A) Discount all future cash flows back to the present

Which of the following is NOT an example of ordinary annuity cash flows? A) Insurance payments due at the start of the period B) Car loans due at the end of the period C) Mortgage payments due at the end of the period D) All of these examples are ordinary annuity cash flows.

A) Insurance payments due at the start of the period

What is the EAR if the APR is 5% and compounding is quarterly? A) Slightly above 5.09% B) Over 5.25% C) Under 5.00% D) Slightly below 5.09%

A) Slightly above 5.09%

Which of the following is NOT true regarding the total payment in an equal payment amortization table? A) The total payment for any period is equal to the principal plus interest payments for that same period. B) The total payment is calculated using the present value of an annuity formula rearranged to solve for the payment. C) The final total payment will be greater than the beginning principal for the final period, assuming a positive interest rate. D) All of these are true.

A) The total payment for any period is equal to the principal plus interest payments for that same period.

Which of the following statements about the relationship between yield to maturity and bond prices is FALSE? A) When interest rates go up, bond prices go up. B) A bond selling at a premium means that the coupon rate is greater than the yield to maturity. C) When the yield to maturity and coupon rate are the same, the bond is called a par value bond. D) A bond selling at a discount means that the coupon rate is less than the yield to maturity.

A) When interest rates go up, bond prices go up.

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________. A) annuity due B) ordinary annuity C) amortization D) perpetuity

A) annuity due

Suppose you invest $3,500 today, compounded semiannually, with an annual interest rate of 8.50%. What amount of interest will you have earned in one year? A) $303.82 B) $307.12 C) $309.13 D) $313.82

A) $303.82

You put down 20% on a home with a purchase price of $150,000, or $30,000. The remaining balance will be $120,000. The bank will loan you this remaining balance at 4.375% APR. You will make monthly payments with a 20-year payment schedule. What is the monthly annuity payment under this schedule? A) $751.11 B) $830.53 C) $910.12 D) $5,250.18

A) $751.11

Creative Solutions Inc. has issued 10-year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ________. A) $80 B) $40 C) $90 D) $45

A) $80

What is the EAR if the APR is 5% and compounding is quarterly? A) Slightly above 5.09% B) Slightly below 5.09% C) Under 5.00% D) Over 5.25%

A) Slightly above 5.09%

The "Truth in Savings Law" requires banks to advertise their rates on investments such as CDs and savings accounts as annual percentage yields (APY). A) TRUE B) FALSE

A) TRUE

When quoting rates on loans, the "Truth in Lending Law" requires the bank to state the rate as an APR, effectively understating the true cost of the loan when interest is computed more often than once a year. A) TRUE B) FALSE

A) TRUE

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? A) $1,000.00 B) $1,620.45 C) $597.24 D) $387.59

B) $1,620.45

Assume you just bought a new car and now have a car loan to repay. The amount of the principal is $22,000, the loan is at 6% APR, and the monthly payments are spread out over 6 years. What is the monthly loan payment? A) $331.1 B) $364.6 C) $297.7 D) $305.6

B) $364.6

You dream of endowing a chair in finance at the local university that will provide a salary of $250,000 per year forever, with the first cash flow to be one year from today. If the university promises to invest the money at a rate of 4% per year, how much money must you give the university today to make your dream a reality? A) $3,000,000 B) $6,250,000 C) $8,857,143 D) This question cannot be answered.

B) $6,250,000

Lily invested $10,000 five years ago with an insurance company that has paid her 4 percent (APR), compounded semi-annually (twice per year). How much interest did Lily earn over the 5 years? A. $4,835.59 B. $2,189.94 C. $3,133.78 D. $1,774.43

B. $2,189.94

Suppose you postpone consumption and invest at 9% when inflation is 2%. What is the approximate real rate of your reward for saving? A. 8% B. 7% C. 6% D. 9%

B. 7%

The present value of a $100 three-year annuity due (first cash flow occurs today) discounted at a rate of 10% is equal to ________. A) $300.00 B) $135.17 C) $273.55 D) $248.69

C) $273.55

Kenna invests $5,000 today, compounded monthly, with an annual interest rate of 8.52%. What amount of interest will she earn in one year? A) $334.04 B) $5,443.04 C) $443.04 D) $5,334.04

C) $443.04

Plimpton has an annuity due that pays $800 per year for 11 years. What is the present value of the cash flows if they are discounted at an annual rate of 7.50%? A) $8,800.00 B) $5,693.49 C) $6,291.26 D) $5,296.27

C) $6,291.26

You have accumulated $1,200,000 for your retirement. How much money can you withdraw in equal annual beginning-of-the-year cash flows if you invest the money at a rate of 5% for thirty years? A) $39,061.96 B) $58,469.12 C) $74,344.50 D) $60,251.52

C) $74,344.50

Big House Nursery Inc. has issued 20-year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 10%. The current price of the bond is ________. A) $1,000.00 B) $1,196.36 C) $829.73 D) There is not enough information to answer this question.

C) $829.73

You have a choice between a lottery lump sum payout of $10,000,000 today or a series of thirty annual annuity payments (first payment one year from today). At a discount rate of 7.50%, how large must the annual annuity payments be to make you indifferent between the two choices? A) $400,000.00 B) $833,102.77 C) $846,712.36 D) $819,814.81

C) $846,712.36

Douglas Distributing Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 6% and the yield to maturity today is 7%, what is the firm's current price per bond? A) $934.34 B) $466.79 C) $875.28 D) $1,000.00

C) $875.28

If you borrow $100,000 at an annual rate of 8.00% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years, what type of loan did you have? A) Amortized loan B) Interest-only loan C) Discount loan D) Compound loan

C) Discount loan

You just entered into a $150,000 30-year home mortgage at an annual interest rate of 4.25% making monthly payments of $737.91. Suppose you add an additional payment of $295.97 each month to the $737.91 house payment making your total monthly payments equal to $1,033.88. This extra amount is applied against the principal of the original loan. How long will it take you to pay off your loan of $150,000? A) It will take about 186 months. B) It will take about 265 months. C) It will take about 204 months. D) It will take about 216 months.

C) It will take about 204 months.

Which of the following types of bonds, as characterized by a feature, by definition has two coupon payments per year? A) Consol B) Zero-coupon C) Semiannual D) Putable

C) Semiannual

What is the EAR if the APR is 10.52% and compounding is daily? A) Slightly below 11.09% B) Slightly above 10.09% C) Slightly above 11.09% D) Over 11.25%

C) Slightly above 11.09%

The phrase "price to rent money" is sometimes used to refer to ________. A) historical prices B) compound rates C) interest rates D) discount rates

C) interest rates

As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that ________. A) the credit rating increases, the default risk decreases, and the required rate of return increases B) the credit rating decreases, the default risk decreases, and the required rate of return decreases C) the credit rating increases, the default risk decreases, and the required rate of return decreases D) the credit rating increases, the default risk increases, and the required rate of return decreases

C) the credit rating increases, the default risk decreases, and the required rate of return decreases

Flashstream Productions Inc. is issuing a zero-coupon bond that will have a maturity of fifty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention? A) $250.19 B) $750.00 C) $1,000.00 D) $25.19

D) $25.19

You borrow $40,000 at an annual interest rate of 11% for seven years, and promise to pay an equal amount back at the end of each year. What should be the amount of each annual payment? A) $8,333.33 B) $3,000.00 C) $0.00 D) $8,488.61

D) $8,488.61

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? A) $1,181.54 B) $1,170.27 C) $843.14 D) $850.61

D) $850.61

A bond may be issued by ________. A) companies B) state governments C) the federal government D) All of these

D) All of these

Which of the following is greater (answers rounded to the nearest cent)? A) An ordinary annuity of $100.00 per year for three years discounted at 10% per year B) A present value of $248.69 C) A future value of $331.00 three years from today, given an interest rate of 10% per year D) You would be indifferent to the three choices since they all have the same present value when using an interest rate of 10% per year.

D) You would be indifferent to the three choices since they all have the same present value when using an interest rate of 10% per year.

With a bearer bond, whoever held it was entitled to the ________ and the ________. A) dividend payments; principal B) interest payments; dividend payments C) interest payments; voting rights D) interest payments; principal

D) interest payments; principal

To determine the interest paid each compounding period, we take the advertised annual percentage rate and simply divide it by the ________ to get the appropriate periodic interest rate. A) number of compounding periods per month B) number of discounting periods for the length of an investment C) number of compounding periods for the length of an investment D) number of compounding periods per year

D) number of compounding periods per year

A bond may be issued by ________. A) companies B) state governments C) the federal government D) All of the above

D) All of the above

You are running short of cash and really need to pay your rent. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $2,000 if you pay them back $2,200 in one week. It seems like a good idea to you because you don't want to sell your car and you are sure you will be able to pay the money back in a week. What is the APR on this loan? A. 1040% B. 10% C. 120% D. 520%

D. 520%

Suppose you postpone consumption and invest at 9% when inflation is 2%. What is the approximate real rate of your reward for saving? A. 8% B. 9% C. 6% D. 7%

D. 7%

consider a three-year amortized loan of $10,000. The interest rate is 10% per year and the terms of the loan call for equal payments at the end of each year. What is the total payment each year? a. $4021.15 b. $5042.25 c. $1298.74 d. $3319.82

a. $4021.15

John borrows $500,000 at an annual rate of 7.62% for a 10 year term. At the end of each year interest payments of $38,100 are paid. At the maturity of the loan the principal amount is repaid, in addition to an interest payment. What type of loan is this? a. interest-only b. amortized c. discount d. simple e. compound

a. interest-only