The bank requires annual end-of-year payments

A) $ 50
B) $200
C) $518
D) $ 77
Answer: D

3) The future value of a dollar ________ as the interest rate increases and ________ the further in the future an initial deposit is to be received.

6) The present value of a $25,000 perpetuity at a 14 percent discount rate is ________. A) $178,571
B) $285,000
C) $350,000
D) $219,298
Answer: A

9) The future value of an ordinary annuity of $2,000 each year for 10 years, deposited at 12 percent, is ________.

A) $35,098
B) $20,000
C) $39,310
D) $11,300
Answer: A

$300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.

A) $1,536
B) $ 672
C) $ 727
D) $1,245
Answer: C

A) effective
B) nominal
C) discounted
D) continuous
Answer: B

14) The future value of $200 received today and deposited at 8 percent compounded semiannually for three years is ________.

D) $134.66
Answer: A

16) If a United States Savings bond can be purchased for $29.50 and has a maturity value of $100 at the end of 25 years, what is the annual rate of return on the bond?

A) $277.95
B) $405.00
C) $352.00
D) $147.00
Answer: D

19) How long would it take for you to save an adequate amount for retirement if you deposit $40,000 per year into an account beginning today that pays 12 percent per year if you wish to have a total of $1,000,000 at retirement?

21) ________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds.

A) Nominal
B) Real
C) Risk-free
D) Inflationary
Answer: A

24) A(n) ________ is issued with no or very low coupon and sells significantly below its par value.

A) income bond
B) zero or low coupon bond
C) mortgage bond
D) subordinated debenture
Answer: B

26) If the coupon rate of a bond is equal to its required rate of return, then ________. A) the current value is not equal to par value
B) the current value is equal to par value
C) the maturity value is equal to par value
D) the current value is equal to maturity value
Answer: B

27) Which of the following is true of equity?

Answer: B

28) Which of the following is true of common stock?

Answer: C

29) Shares of stock currently owned by a firm's shareholders are called ________. A) authorized shares
B) issued shares
C) outstanding shares
D) treasury shares
Answer: C

C) perpetuity
D) common stock
Answer: C

32) When the required return is constant but different from the coupon rate, the price of a bond as it approaches its maturity date will ________.

A) bond D will have a greater change in price
B) bond E will have a greater change in price
C) the price of the bonds will be constant
D) the percentage price change for the bonds will be equal Answer: B

31) Hewitt Packing Company has an issue of $1,000 par value bonds with a 14 percent annual coupon interest rate. The issue has ten years remaining to the maturity date. Bonds of similar risk are currently selling to yield a 12 percent rate of return. The current value of each Hewitt bond is ________.

33) If a corporate bond is issued with a coupon rate that varies directly with the required return, the price of the bond will ________.

A) equal the face value
B) be less than the face value
C) be greater than the face value
D) be greater than or less than the face value depending on how interest rates vary Answer: A

36) What is the current price of a $1,000 par value bond maturing in 9 years with a coupon rate of 8 percent, paid annually, that has a YTM of 9 percent?

A) $700
B) $945
C) $940
D) $1,062
Answer: C

A) 10.79 percent
B) 11.39 percent
C) 12.19 percent
D) 13.29 percent
Answer: A

39) What is the yield to maturity, to the nearest percent, for the following bond: current price is $908, coupon rate is 11 percent, $1,000 par value, interest paid annually, eight years to maturity?

A) 12.00%
B) 13.99%
C) 14.54%
D) 15.25%
Answer: C

42) Detta borrows $20,000 from the bank. For a five-year loan, the bank requires annual end-of-year payments of $4,878.05. The annual interest rate on the loan is ________.

44) 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?

A) 12.2 years
B) 15.7 years
C) 14.5 years
D) 16.5 years
Answer: A

47) Which of the following is a difference between common stock and bonds?

A) Bondholders have a voice in management; common stockholders do not.

A) own the firm
B) receive interest payments
C) receive guaranteed income