Description
Question 1
A local brokerage firm
is offering a zero coupon certificate of deposit for $10,000. At maturity,
three years from now, the investor will receive $14,000. What is the rate of
return on this investment?
Answer
14 

13 

12 

11 
Question 2
Zheng Sen wishes to
accumulate $1 million by the end of 20 years by making equal annual endofyear
deposits over the next 20 years. If Zheng Sen can earn 10 percent on his
investments, how much must he deposit at the end of each year?
Answer
$ 

$ 

$117,453 

$17,460 
Question 3
Colin would like to
send her parents on a cruise for their 25th wedding anniversary. She has priced
the cruise at $15,000 and she has 5 years to accumulate this money. How much
must Janice deposit annually in an account paying 10 percent interest in order
to have enough money to send her parents on the cruise?
Answer
$1,862 

$2,457 

$3,000 

$2,234 
Question 4
The future value of
$200 received today and deposited at 8 percent compounded semiannually for
three years is
Answer
$380. 

$158. 

$253. 

$252. 
Question 5
If the required return
is less than the coupon rate, a bond will sell at
Answer
par. 

a 

a 

book 
Question 6
Bill plans to fund his
individual retirement account (IRA) with the maximum contribution of $2,000 at
the end of each year for the next 20 years. If Bill can earn 12 percent on his
contributions, how much will he have at the end of the twentieth year?
Answer
$19,292 

$14,938 

$40,000 

$144,104 
Question 7
The rate of return
earned on an investment of $50,000 today that guarantees an annuity of $10,489
for six years is approximately
Answer
5%. 

7%. 

30%. 

None 
Question 8
The present value of a
$25,000 perpetuity at a 14 percent discount rate is
Answer
$178,571. 

$285,000. 

$350,000. 

$219,298. 

Question 9
Hewitt Packing Answer

Question 10
The future value of a
$2,000 annuity due deposited at 8 percent compounded annually for each of the
next 10 years is
Answer
$28,974. 

$31,292. 

$14,494. 

$13,420. 
Question 11
What is the
approximate yield to maturity for a $1,000 par value bond selling for $1,120
that matures in 6 years and pays 12 percent interest annually?
Answer
8.5 

9.4 

12.0 

13.2 

Question 12
Tangshan Industries Answer

Question 13
Find the present value
of the following stream of cash flows, assuming that the firm’s opportunity
cost is 25 percent.
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Answer
$27,168 

$35,200 

$34,000 

$32,500 
Question 14
A firm has an issue of
$1,000 par value bonds with a 9 percent stated interest rate outstanding. The
issue pays interest annually and has 20 years remaining to its maturity date.
If bonds of similar risk are currently earning 11 percent, the firm’s bond will
sell for ________ today.
Answer
$1,000 

$716.67 

$840.67 

$1,123.33 
Question 15
The present value of
$200 to be received 10 years from today, assuming an opportunity cost of 10
percent, is
Answer
$ 

$200. 

$518. 

$ 
Question 16
Alexis owns stock in a
company which has consistently paid a growing dividend over the last 10 years.
The first year Alexis owned the stock, she received $4.50 per share and in the
10th year, she received $4.92 per share. What is the growth rate of the dividends
over the last 10 years?
Answer
5 

4 

2 

1 
Question 17
The future value of
$100 received today and deposited at 6 percent for four years is
Answer
$126. 

$ 

$124. 

$116. 
Question 18
Aunt Tilly borrows
$3,500 from the bank at 12 percent annually compounded interest to be repaid in
four equal annual installments. The interest paid in the first year is
Answer
$ 

$ 

$ 

$1,152. 
Question 19
How long would it take
for Nico to save an adequate amount for retirement if he deposits $40,000 per
year into an account beginning one year from today that pays 12 percent per
year if he wishes to have a total of $1,000,000 at retirement?
Answer
15.0 

15.5 

14.5 

16.5 
Question 20
Nico makes annual
endofyear payments of $5,043.71 on a fouryear loan with an interest rate of
13 percent. The original principal amount was
Answer
$24,462. 

$15,000. 

$ 

$20,175. 
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