Question 2

If you invest $8,000 at 11% interest, how much will you have in 9 years?

$123,328

$24,032

$20,464

$18,824

Question 7

To save for her newborn son’s college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 7 percent. What is the future value at the end of 18 years?

$37,450

$37,379

$33,999

$3,380

Question 8

Mr. Blochirt is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn a 9% annual rate of return. How much money will his daughter have when she starts college?

$23,079

$22,263

$24,957

$11,250

Question 10

Dr. J. wants to buy a Dell computer which will cost $2,988 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 5% annual return. How much should he set aside?

$693.27

$531.81

$823.15

$627.93

Question 11

Mr. Fish wants to build a house in 12 years. He estimates that the total cost will be $190,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn in order to have the amount needed?

14%

7%

Between 8% and 9%

Between 11% and 12%

Question 12

Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today’s dollars?

Present value of a single amount

Present value of an annuity

Future value of an annuity

None of the above

Question 14

Mr. Darden is selling his house for $155,000. He bought it for $66,000 nine years ago. What is the annual return on his investment?

13%

Between 9% and 10%

Between 14% and 16%

Between 10% and 11%

Question 15

Joe Nautilus has $120,000 and wants to retire. What return must his money earn so he may receive annual benefits of $20,000 for the next 12 years.

Less than 12%

Greater than 15%

Between 12% and 13%

14%

Question 17

After 16 years, 100 shares of stock originally purchased for $1000 was sold for $7,000. What was the yield on the investment? Choose the closest answer.

13%

5%

8%

19%

Question 18

The future value of a $1000 investment today at 8 percent annual interest compounded semiannually for 7 years is

$1,714

$1,480

$1,732

$1,469

Question 20

A ten-year bond, with par value equals $1000, pays 8% annually. If similar bonds are currently yielding 4% annually, what is the market value of the bond? Use semi-annual analysis.

$1,324.88

$1,000.00

$1,327.04

$1297.85

Question 23

A ten-year bond pays 11% interest on a $1000 face value annually. If it currently sells for $1,105, what is its approximate yield to maturity?

9.36%

7.94%

12.66%

8.10%

Question 25

What is the approximate yield to maturity for a seven-year bond that pays 11% annual interest on a $1000 face value if the bond sells for $932?

10.6%

12.48%

12.0%

11.0%

Question 26

The growth rate for the firm’s common stock is 7%. The firm’s preferred stock is paying an annual dividend of $5. What is the preferred stock price if the required rate of return is 6%?

$62.5

$5

$500

none of the above

Question 28

An issue of common stock has just paid a dividend of $3.75. Its growth rate is 8%. What is its price if the market’s rate of return is 14%?

$46.88

$62.50

$50.63

none of the above

Question 30

An issue of common stock is expected to pay a dividend of $4.50 at the end of the year. Its growth rate is equal to 3%, and the current share price is $40. What is the required rate of return on the stock?

between 12% and 14%

between 14% and 17%

between 7% and 10%

between 10% and 12%

Question 32

Buchanan Corp. is refunding $12 million worth of 10% debt. The new bonds will be issued for 8%. The corporation’s tax rate is 34%. The call premium is 8%. What is the net cost of the call premium?

$326,400

$633,600

$960,000

$702,000

Question 33

With regard to interest rates and bond prices it can be said that

a decrease in interest rates will cause bond prices to fall.

long-term rates are more volatile than short-term rates.

a 1% change in interest rates will cause a greater change in long-term bond prices than short-term prices.

a 1% change in interest rates will cause a greater change in short-term bond prices than long-term prices.

Question 34

A bond with a coupon rate of 7.5%, maturing in 10 years at a value of $1,000 and a current market price of $850, will have a yield to maturity (using the approximation formula) of:

between 9.5% and 10%

between 11% and 11.5%

between 10% and 10.5%

between 10.5% and 11%

Question 37

From the corporate issuer viewpoint, a zero-coupon bond allows the firm to:

reduce the multiplier of the initial investment.

Take advantage of low volatility.

defer payment obligations

receive deferred income for tax purposes.

Question 43

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% tax bracket?

preferred stock at 6.0%

corporate bonds at 8.0%

municipal bonds at 5.0%

treasury bonds at 6.0%

Question 44

Buggy Whip Manufacturing Company is issuing preferred stock yielding 10%. Selten Corporation is considering buying the stock. Buggy’s tax rate is 0% due to continuing heavy tax losses, and Selten’s tax rate is 44%. What is the after-tax preferred yield for Selten?

10.0%

3.4%

8.68%

8.98%

Question 45

Which of the following is the correct order of corporate issues based on risk and return? (most risk-return to least risk-return)

Preferred stock, common stock, subordinated debentures, secured debt.

Common stock, subordinated debentures, secured debt, treasury bills.

Common stock, long-term government bonds, secured debt, subordinated debt.

Common stock, secured debt, subordinated debentures, preferred stock.

Question 48

A stock is said to sell “ex-rights” after the rights have all been exercised and the new issue is completely sold. when transfer of stock ownership no longer carries with it the privilege of subscription. after the terms of the subscription have been made public. when the period in which the subscription privilege is to be exercised has expired.

Question 48

A stock is said to sell “ex-rights”

after the rights have all been exercised and the new issue is completely sold.

when transfer of stock ownership no longer carries with it the privilege of subscription.

after the terms of the subscription have been made public.

when the period in which the subscription privilege is to be exercised has expired.

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