BADM 310 Finance Exam #1 Review

A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:

sole proprietorship.

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

was facilitated in the secondary market.

An example of a capital budgeting decision is deciding:

whether or not to purchase a new machine for the production line.

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 13 years to maturity, and a coupon rate of 7 percent paid annuallly. If the yield to maturity is 11 percent, what is the current price of the bond?

€730.01

Weismann Co. issued 9-year bonds a year ago at a coupon rate of 7 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 7 percent, what is the current bond price?

$1,000.00

You Save Bank has a unique account. If you deposit $5,500 today, the bank will pay you an annual interest rate of 5 percent for 4 years, 5.6 percent for 3 years, and 6.3 percent for 7 years. How much will you have in your account in 14 years?

$12,073.81

You need to have $34,250 in 17 in years. You can earn an annual interest rate of 4 percent for the first 5 years, 4.6 percent for the next 4 years, and 5.3 percent for the final 8 years. How much do you have to deposit today?

$15,557.51

You want to have $67,000 in your savings account 3 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.5 percent interest, what amount must you deposit each year?

$20,942.57

You need to have $30,000 for a down payment on a house 6 in years. If you can earn an annual interest rate of 4.8 percent, how much will you have to deposit today?

$22,644.02

You are planning to make monthly deposits of $140 into a retirement account that pays 8 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 13 years?

$38,208.85

You are going to deposit $19,500 today. You will earn an annual rate of 3.5 percent for 12 years, and then earn an annual rate of 2.9 percent for 15 years. How much will you have in your account in 27 years?

$45,242.80

What is the value today of $1,100 per year, at a discount rate of 11 percent, if the first payment is received 6 years from now and the last payment is received 30 years from today?

$5,497.69

Beatrice invests $1,280 in an account that pays 5 percent simple interest. How much more could she have earned over a 6-year period if the interest had been compounded annually?

$51.32

Travis International has a debt payment of $2.23 million that it must make 3 years from today. The company does not want to come up with the entire amount at that time, so it plans to make equal monthly deposits into an account starting 1 month from now to fund this liability. If the company can earn a return of 4.78 percent compounded monthly, how much must it deposit each month?

$57,732.22

Your sister just deposited $12,500 into an investment account. She believes that she will earn an annual return of 10.2 percent for the next 9 years. You believe that you will only be able to earn an annual return of 9.6 percent over the same period. How much more must you deposit today in order to have the same amount as your sister in 9 years?

$629.54

Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 15 years to maturity. If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Sam?

-12.67%

Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 15 years to maturity. If interest rates suddenly rise by 4 percent, what is the percentage change in the price of Bond Dave?

-29.07%

You currently have $5,900. First United Bank will pay you an annual interest rate of 9.4, while Second National Bank will pay you an annual interest rate of 10.5. How many fewer years must you wait for your account value to grow to $18,400 at Second National Bank?

1.27 years

West Corp. issued 16-year bonds 2 years ago at a coupon rate of 9.7 percent. The bonds make semiannual payments. If these bonds currently sell for 96 percent of par value, what is the YTM?

10.24%

When your father was born 45 years ago, his grandparents deposited $400 in an account for him. Today, that account is worth $46,300. What was the annual rate of return on this account?

11.14 percent

You expect to receive a payout from a trust fund in 3 years. The payout will be for $11,800. You plan to invest the money at an annual rate of 6.8 percent until the account is worth $20,200. How many years do you have to wait from today?

11.17 years

You have just deposited $8,500 into an account that promises to pay you an annual interest rate of 6 percent each year for the next 6 years. You will leave the money invested in the account and 10 years from today, you need to have $19,320 in the account. What annual interest rate must you earn over the last 4 years to accomplish this goal?

12.51%

The yield to maturity on a bond is the interest rate you earn on your investment if interest rates do not change. If you actually sell the bond before it matures, your realized return is known as the holding period yield. Suppose that today you buy a coupon bond with 9 percent annual interest for $1,000. The bond has 12 years to maturity. Three years from now, the yield to maturity has declined to 7 percent and you decide to sell. What is your holding period yield?

12.83 percent

Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 15 years to maturity. If rates were to suddenly fall by 4 percent instead, what would the percentage change in the price of Bond Sam be then?

14.97%

Find the EAR in each of the following cases d. 14% with continuous compounding

15.03%

Find the EAR in each of the following cases c. 19% compounded daily

20.92%

You have a credit card with a balance of $14,200 and an APR of 18.2 percent compounded monthly. You have been making monthly payments of $270 per month, but you have received a substantial raise and will increase your monthly payments to $345 per month. How many months quicker will you be able to pay off the account?

41.12 months

Thom owes $4,800 on his credit card. The credit card carries an APR of 17.2 percent compounded monthly. If Thom makes monthly payments of $150 per month, how long will it take for him to pay off the credit card assuming that he makes no additional charges?

43.12 months

Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 15 years to maturity. If rates were to suddenly fall by 4 percent instead, what would the percentage change in the price of Bond Dave be then?

48.03%

You deposit $1,700 at the end of each year into an account paying 9.6 percent interest. b.How much will you have if you make deposits for 38 years?

559,029.90

You're prepared to make monthly payments of $320, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $21,044?

57

Gabriele Enterprises has bonds on the market making annual payments, with 17 years to maturity, a par value of $1,000, and selling for $770. At this price, the bonds yield 9.1 percent. What must the coupon rate be on the bonds?

6.39%

Find the EAR in each of the following cases a. 8% compounded quarterly

8.24%

An investment offers a total return of 15.0 percent over the coming year. Janice Yellen thinks the total real return on this investment will be only 6.0 percent. What does Janice believe the inflation rate will be over the next year?

8.49%

You deposit $1,700 at the end of each year into an account paying 9.6 percent interest. a.How much money will you have in the account in 19 years?

83,351.42

Find the EAR in each of the following cases b. 9% compounded monthly

9.38%

Which one of the following terms is defined as the management of a firm's long-term investments?

Capital budgeting

Which one of the following questions is a working capital management decision?

How much inventory should be on hand for immediate sale?

Round Dot Inns is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent.

Which one of these equations applies to a bond that currently has a market price that exceeds par value?

Yield to maturity < Coupon rate

A business created as a distinct legal entity and treated as a legal "person" is called a(n):

corporation.

Agency problems are most associated with:

corporations.

Capital structure decisions include determining:

how much debt should be assumed to fund a project.

A general partner:

is personally responsible for all partnership debts.

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

limited partner.