Fin Final

Given the hypothetical income tax brackets as shown, what is the average tax rate for a person with taxable income of $289,740? < = $50,000: 15% $50,000 - $75,000: 25% $75,000 - $100,000: 34% $100,000 - $500,000: 39%

33.22 percent

A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets?

$13,358.77

Standard deviation is a measure of which one of the following?

Volatility

Bernice's has $823,000 in sales. The profit margin is 3.9 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $15. What is the price-earnings ratio?

3.51

You grandfather invested $20,000 years ago to provide annual payments of $750 a year to his heirs forever. What is the rate of return?

3.75 percent

You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,062.50. The bond matures in 11 years. What is the yield to maturity?

5.62 percent

The growth of both sole proprietorships and partnerships is frequently limited by their:

Inability to raise cash.

Which one of the following statements related to cash dividends is correct?

A dividend is never a liability of the issuer until it has been declared.

Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

Balance sheet

Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true?

Barb will earn more interest the second year than Andy

The book value of assets is

Based on historical cost

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

What is the effective annual rate of 7% compounded continuously?

7.25

Jensen Shipping currently has an EPS of $5.29, a benchmark PE of 19.5, and an earnings growth rate of 4.3 percent. What is the target share price 4 years from now?

$122.08

You borrow $230,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 25 years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how much total interest will you pay?

$153,524

You are ready to buy a house, and you have $20,000 for a down payment and closing costs. Closing costs are estimated to be 4% of the loan value.vYou have an annual salary of $36,000, and the bank is willing to allow your monthly mortgage payment to be equal to 28% of your monthly income. The interest rate on the loan is 6% per year with monthly compounding (.5% per month) for a 30-year fixed rate loan. How much can you offer for the house?

$154,501

A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity?

$18,700

On June 1, you borrowed $195,000 to buy a house. The mortgage rate is 5.25 percent. The loan is to be repaid in equal monthly payments over 15 years. All taxes and insurance premiums are to be paid separately. The first payment is due on July 1. How much of the first payment applies to the principal balance?

$714.43

A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?

47.52 days

A stock has annual returns of 5.4 percent, 12.9 percent, -3.8 percent, and 9.4 percent for the past four years. The arithmetic average of these returns is _____ percent while the geometric average return for the period is _____ percent.

5.98; 5.79

Verbal Communications, Inc., has 12,500 shares of stock outstanding with a par value of $1 per share and a market value of $27 per share. The firm just announced a stock dividend of 100 percent. What is the market value per share after the dividend?

$13.5

Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio?

.89

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 6 percent, -14 percent, 12percent, 9 percent, and 11 percent. Suppose the average inflation rate over this time period was 2.8 percent and the average T-bill rate was 3.2 percent. Based on this information, what was the average nominal risk premium?

1.60 percent

A "fallen angel" is a bond that has moved from:

Investment grade to speculative grade.

Which one of the following statements is correct concerning the NYSE?

The listing requirements for the NYSE are more stringent than those of NASDAQ.

How is the principal amount of an interest-only loan repaid?

The principal is repaid in one lump sum at the end of the loan period

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

Was facilitated in the secondary market

A 10-year, 4.5 percent, semiannual coupon bond issued by Tyler Rentals has a $1,000 face value. The bond is currently quoted at 98.7. What is the clean price of this bond if the next interest payment will occur 2 months from today?

$987.00

A stock had annual returns of 16 percent, 8 percent, -17 percent, and 21 percent for the past four years. Based on this information, what is the 95 percent probability range of returns for any one given year?

-26.74 to 40.74percent

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

.05 / (1 - t*) = .07.

You recently purchased a stock that is expected to earn 30 percent in a booming economy, 9 percent in a normal economy, and lose 33 percent in a recessionary economy. There is a 5 percent probability of a boom and a 75 percent chance of a normal economy. What is your expected rate of return on this stock?

1.65 percent

A 13-year, 6 percent coupon bond pays interest semiannually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent?

1.79 percent decrease

You own a portfolio that has $2,000 invested in stock A and $3,500 invested in stock B. The expected returns on these stocks are 14 percent and 9 percent, respectively. What is the expected return on the portfolio?

10.82 percent

Phil can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, how much can he afford to borrow to purchase a car?

11,697.88

What is the expected return on a portfolio that is equally weighted between stocks K and L given the following information? State of Economy Probability of State Returns Stock K Stock L Boom 25% 16% 13% Normal 75% 12% 8%

11.13%

Jogging Gear is considering a project with an initial cash requirement of $238,400. The project will yield cash flows of $4,930 monthly for 65 months. What is the rate of return on this project?

11.38 percent

Four years ago, Seegee invested $500. Three years ago, Trek invested $600. Today, these two investments are each worth $800. Assume each account continues to earn its respective rate of return. Which one of the following statements is correct concerning these investments?

One year ago, Seegee's investment was worth less than Trek's investment

Which one of these statements related to growing annuities and perpetuities is correct?

The present value of a growing perpetuity will decrease if the discount rate is increased

This afternoon, you deposited $1,000 into a retirement savings account. The account will compound interest at 6 percent annually. You will not withdraw any principal or interest until you retire in 40 years. Which one of the following statements is correct?

The present value of this investment is equal to $1,000

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2013?

U.S. Treasury bills

You invested $6,500 in an account that pays 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?

$1,240.51

You want to have $30,000 saved 5 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 3.5 percent rather than 2.5 percent on your savings? Today's deposit is the only deposit you will make to this savings account.

$1,256.43

You purchase a bond with an invoice price of $1,319. The bond has a coupon rate of 6.25 percent, a face value of $1,000, and there are two months to the next semiannual coupon date. What is the clean price of this bond?

$1,298.17

Goods Guys Foods established a trust fund that provides $125,000 in scholarships each year for needy students. The trust fund earns a fixed 7.25 percent rate of return. How much money did the firm contribute to the fund assuming that only the interest income is distributed?

$1,724,138

Suppose the first comic book of a classic series was sold in 1954. In 2015, the estimated price for this comic book in good condition was about $310,000. This represented a return of 22 percent per year. For this to be true, what was the original price of the comic book in 1954?

$1.67

Home Parties is paying an annual dividend of $1.25 every other year. The last dividend was paid last year. The firm will continue this policy until two more dividend payments have been paid. One year after the last normal dividend payment, the company plans to pay a final liquidating dividend of $25 per share. What is the current market value of this stock if the required return is 17 percent?

$15.19

Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 2.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent?

$26.94

This morning, you borrowed $162,000 to buy a house. The mortgage rate is 4.35 percent. The loan is to be repaid in equal monthly payments over 20 years with the first payment due one month from today. Assume each month is equal to 1/12 of a year and all taxes and insurance premiums are paid separately. How much of the second payment applies to the principal balance?

$426.11

Al invested $7,200 in an account that pays 4 percent simple interest. How much money will he have at the end of five years?

$8,640

If the economy is normal, Charleston Freight stock is expected to return 16.5 percent. If the economy falls into a recession, the stock's return is projected at a negative 11.6 percent. The probability of a normal economy is 80 percent while the probability of a recession is 20 percent. What is the variance of the returns on this stock?

0.012634

A stock has an expected return of 11 percent, the risk-free rate is 5.2 percent, and the market risk premium is 5 percent. What is the stock's beta?

1.16

What is the effective annual rate if a bank charges you an APR of 8.25 percent, compounded quarterly?

8.51 percent

Which one of the following is a direct result of a 2-for-1 stock split?

A 50 percent decrease in the par value per share.

You are comparing two annuities that offer quarterly payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?

Annuity B has a smaller present value than annuity A

Which one of these statements related to annuities is correct?

Annuity due has larger present value than an otherwise-the-same ordinary annuity.

NYSE designated market makers:

Are key liquidity providers

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: Correct!

Broker

Which of the following yields on a stock can be negative?

Capital gains yield and total return

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Common.

An agent who maintains an inventory from which he or she buys and sells securities is called a:

Dealer

Which one of the following is a capital budgeting decision?

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

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?

Default risk.

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

Determining whether to pay cash for a purchase or use the credit offered by the supplier

You are considering five loan offers. The only significant difference between them is their interest rates. Given the following information, which offer should you accept? (Assume a 365-day year.) Offer A: 6.75 percent APR with daily compounding. Offer B: 6.8 percent APR with monthly compounding. Offer C: 7 percent APR with annual compounding. Offer D: 6.825 percent APR with quarterly compounding. Offer E: 6.85 percent APR with semiannual compounding.

E

A sinking fund is managed by a trustee for which one of the following purposes?

Early bond redemption.

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm:

Has an equity multiplier of 1.0

A business owned by a solitary individual who has unlimited liability for its debt is called a:

Sole proprietorship

Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

Working capital

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why?

You should accept the $200,000 because the payments are only worth $195,413 to you today

The ex-dividend date

is the day before which you have to own the shares to receive dividends

Your credit card company charges you 1.65 percent interest per month. What is the annual percentage rate on your account?

19.80 percent

Systematic risk is measured by:

Beta.

Rosina plans on saving $2,000 a year and expects to earn an annual rate of 8.8 percent. How much will she have in her account at the end of 43 years?

$831,532

Which one of the following statements is correct concerning a portfolio beta?

A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.

Stock splits can be used to:

Adjust the market price of a stock so it falls within a preferred trading range.

On your ninth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

Age 30

You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive, in the sense that the total interest you pay would be the least? Assume all loans require monthly payments and that interest is compounded on a monthly basis.

Amortized loan with equal principal payments.

The common stock of Dayton Dry Goods has historically had a low dividend yield that is expected to continue. As a result, the majority of its shareholders are individuals who prefer capital gains over cash dividends for tax reasons. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?

Clientele effect

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?

Efficient capital market

Which of the following are current assets? I. Cash II. Trademark III. Accounts receivable IV. Notes payable

I and III only

Which bond would you generally expect to have the highest yield?

Long-term, taxable junk bond

The dividend growth model:

Requires the growth rate to be less than the required return.

Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?

Reward-to-risk ratio

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?

Risk premium

HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called?

Stock repurchase

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

Strong

Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the company announced that future dividends will be increasing by 2.8 percent annually. If you require a return of 11.6 percent, how much are you willing to pay to purchase one share of this stock today?

$16.00

Ernie's Home Repair had beginning long-term debt of $51,207 and ending long-term debt of $36,714. The beginning and ending total debt balances were $59,513 and $42,612, respectively. The interest paid was $2,808. What is the amount of the cash flow to creditors?

$17,301

Flo's Flowers pays an annual dividend that is expected to increase by 2.1 percent per year. The stock commands a market rate of return of 13.8 percent and sells for $19.06 a share. What is the expected amount of the next dividend?

$2.23

An amortized loan

May have equal or increasing amounts applied to the principal from each loan payment

If a stock portfolio is well diversified, then the portfolio variance:

May be less than the variance of the least risky stock in the portfolio.

Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split?

$22.00

You need a 30-year, fixed-rate mortgage to buy a new home for $225,000. Your bank will lend you the money at an APR of 5.5 percent with monthly compounding. You can only afford monthly payments of $1,000 for principal and interest, so you offer to pay off any remaining loan balance at the end of the loan term in the form of a single balloon payment. What will be the amount of the balloon payment?

$253,550

The government has imposed a fine on JJ's Place. The fine calls for annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including the investment earnings, to help the local community shelter. The government will earn 5.5 percent on the funds held. How much will the community shelter receive four years from today?

$277,491

West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 3.2 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock?

$307.20

Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1 per share. The market value is $12 per share. The balance sheet shows $42,000 in the capital in excess of par account, $20,000 in the common stock account, and $50,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will be the balance in the retained earnings account after the dividend?

$38,500

On July 9, you purchased 600 shares of Blue Water stock for $32 a share. On August 4, you sold 100 shares of this stock for $33 a share. You sold an additional 100 shares on August 14 at a price of $34.50 a share. The company declared a dividend of $.76 per share on August 3 to holders of record as of Monday, August 17. This dividend is payable on September 15. How much dividend income will you receive on September 15?

$380

You just won the magazine sweepstakes and opted to take unending payments. The first payment will be $21,500 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent?

$398,148

You own 1,600 shares of Dell Hardware. The company plans on issuing a dividend of $.58 a share at the end of this year and then issuing a final liquidating dividend of $5.30 a share at the end of next year. Your required rate of return on this security is 17 percent. Ignoring taxes, what is the value of one share of this stock to you today?

$4.37

The market value balance sheet for Cherry Pie Corp. reflects a cash of $22,000, fixed assets of $209,000, and equity of $231,000. There are 5,000 shares of stock outstanding with a par value of $1 per share. The company has announced that it is going to repurchase $18,000 worth of stock. Other things equal, what will the price of the stock be after this repurchase?

$46.20

Roadside Markets has a 6.75 percent coupon bond outstanding that matures in 10.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

$967.24

Your older sister deposited $2,000 today at 6.5 percent interest for five years. You would like to have just as much money at the end of the next five years as your sister will have. However, you can only earn 6 percent interest. How much more money must you deposit today than your sister did if you are to have the same amount at the end of the five years?

$47.62

Distant Groves announced today that it will begin paying annual dividends next year. Dividends for the first three years will be $.15, $.20, and $.25 a share, respectively. After that, dividends are projected to increase by 4 percent per year. What is one share of this stock worth today at a required return of 8.5 percent?

$5.03

Your grandmother is gifting you $150 a month for four years while you attend college to earn your bachelor's degree. At a 4.8 percent discount rate, what are these payments worth to you on the day you enter college?

$6,539.14

A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?

$6,890

Drew owns The What-Not Shop, which he is trying to sell so that he can retire and travel. The shop owns the building in which it is located. This building was built at a cost of $647,000 and is currently appraised at $819,000. The counters and fixtures originally cost $148,000 and are currently valued at $65,000. The inventory is valued on the balance sheet at $319,000 and has a retail market value equal to 1.1 times its cost. Jake expects the store to collect 96 percent of the $21,700 in accounts receivable. The firm has $26,800 in cash and has total debt of $414,700. What is the market value of this firm?

$867,832

What is the present value of $1,400 a year at a discount rate of 8 percent if the first payment is received 7 years from now and you receive a total of 23 annual payments?

$9,149.74

Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital?

$93,500

A stock had returns of 6 percent, -22 percent, 18percent, 12 percent, and -2 percent over the past five years. What is the standard deviation of these returns?

15.52 percent

You are considering an annuity that costs $160,000 today. The annuity pays $17,500 a year at an annual interest rate of 7.5 percent. What is the length of the annuity time period?

16 years

You have two assets A and B equally weighted in your portfolio. The covariance of A and B is -288, the variance of A is 384, and the variance of B is 216. What is the standard deviation of the portfolio?

2.45

The expected return on JK stock is 15.78 percent while the expected return on the market is 11.34 percent. The stock's beta is 1.51. What is the risk-free rate of return?

2.63 percent

Which one of the following time periods is associated with low rates of inflation?

2010-2013

At 6 percent interest, how long would it take to quadruple your money?

23.79 years

The present value of the following cash flow stream is $5,933.86 when discounted at 11 percent annually. What is the value of the missing cash flow? Year Cash Flow 1 $2,000 2 ? 3 1,750 4 1,250

2500

Last year, you purchased 500 shares of Analog stock for $11.16 a share. You have received a total of $120 in dividends and $7,190 from selling the shares. What is your capital gains yield on this stock?

28.85 percent

You just received an offer in the mail to transfer your $5,000 balance from your current credit card, which charges an annual rate of 18.7 percent, to a new credit card charging a rate of 5.9 percent. You plan to make payments of $250 a month on this debt. How many fewer payments will you have to make to pay off this debt if you transfer the balance to the new card?

3.05 payments

Suppose the real rate is 2.45 percent and the inflation rate is 1.8 percent. What rate would you expect to see on a Treasury bill?

4.29 percent

Leo purchased a stock for $47.10 a share, received a $1.74 dividend per share and sold the shares for $50.10 a share. During the time he owned the stock, inflation averaged 3.1 percent. What is his approximate real rate of return on this investment?

6.96 percent

You have a portfolio consisting solely of stock A and stock B. The portfolio has an expected return of 9.8 percent. Stock A has an expected return of 11.4 percent while stock B is expected to return 6.4 percent. What is the portfolio weight of stock A?

68 percent

The market has an expected rate of return of 11.2 percent. The long-term government bond is expected to yield 5.8 percent and the U.S. Treasury bill is expected to yield 3.9 percent. The inflation rate is 3.6 percent. What is the market risk premium?

7.3 percent

The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15 percent annually and expects to continue doing so. What is the market rate of return on this stock?

7.43 percent

You have a 30-year mortgage of $200,009 with your local bank, and your monthly payment is $1400. What was the interest rate you were quoted when you initiated the loan?

7.511

Jerilu Markets has a beta of 1.09. The risk-free rate of return is 2.75 percent and the market rate of return is 9.80 percent. What is the risk premium on this stock?

7.68 percent

Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment?

7.90 percent

Which one of the following will produce the lowest present value interest factor?

8 percent interest for 10 years

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers

Agency problem

You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You will earn 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? I. Invest in a different account paying a higher rate of interest. II. Invest in a different account paying a lower rate of interest. III. Retire later. IV. Retire sooner.

I and III only.

Which of the following should a financial manager consider when analyzing a capital budgeting project? I. Project start-up costs. II. Timing of all projected cash flows. III. Dependability of future cash flows. IV. Dollar amount of each projected cash flow.

I, II, III, and IV

Which of the following are advantages of the corporate form of business ownership? I. Limited liability for firm debt. II. Double taxation. III. Ability to raise capital. IV. Unlimited firm life.

I, III, and IV only

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

II, III, and IV only

As a bond's time to maturity increases, the bond's sensitivity to interest rate risk:

Increases at a decreasing rate.

Aaron owns 1,600 shares of LP Gas stock which he purchased six years ago at a price of $18 a share. Today, these shares are selling for $26 each. Aaron is subject to a tax rate of 20 percent on both his dividend income and his capital gains. Ignore costs. From Aaron's point of view, a stock repurchase today:

Is more desirable than a cash dividend in respect to taxes.

The information content of a dividend increase generally signals that:

Management believes earnings growth will be strong going forward.

The current yield is defined as the annual interest on a bond divided by which one of the following?

Market price.

Which one of the following is represented by the slope of the security market line?

Market risk premium

The secondary market is best defined by which one of the following?

Market where outstanding shares of stock are resold.

Which one of the following statements related to market efficiency tends to be supported by current evidence?

Markets tend to respond quickly to new information.

Municipal bonds:

Pay interest that is federally tax free.

Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?

Primary

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.