A bond dealer sells at the _____ price and buys at the _____ price.

Homework II – FIN 3100 – Fall 2018 Name: _______________________________________ Each question is worth 1 point. 1. Travis is buying a car and will finance it with a loan that requires monthly payments of $265 for the next four years. His car payments can be described by which one of the following terms? A. Perpetuity B. Annuity C. Consol D. Lump sum E. Present value 2. A perpetuity in Canada is frequently referred to as: A. a consul. B. an infinity. C. forever cash. D. a dowry. E. a forevermore. 3. Which one of the following features distinguishes an ordinary annuity from an annuity due? A. Number of equal payments B. Amount of each payment C. Frequency of the payments D. Annuity interest rate E. Timing of the annuity payments

4. A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account: A. will be less than 12.9 percent. B. can either be less than or equal to 12.9 percent. C. is 12.9 percent. D. can either be greater than or equal to 12.9 percent. E. will be greater than 12.9 percent.

5. Capstone Investments is considering a project that will produce cash inflows of $11,000 at the end of Year 1, $24,000 in Year 2, and $36,000 in Year 3. What is the present value of these cash inflows at a discount rate of 12 percent? A. $41,997.60 B. $46,564.28 C. $54,578.17 D. $54,868.15 E. $63,494.54 6. Today, you are purchasing a 20-year, 6 percent annuity at a cost of $48,350. The annuity will pay annual payments starting one year from today. What is the amount of each payment? A. $4,511.08 B. $4,215.37 C. $2,754.40 D. $4,013.20 E. $5,208.19 7. Katie's Dinor spent $113,800 to refurbish its current facility. The firm borrowed 65 percent of the refurbishment cost at 6.82 percent interest for six years. What is the amount of each monthly payment? A. $1,108.91 B. $1,282.16

C. $1,333.33 D. $1,254.73 E. $1,087.06 8. Alexis plans to invest $2,500 a year for 30 years starting at the end of this year. How much will this investment be worth at the end of the 30 years if she earns an average annual rate of return of 9.6 percent? A. $387,411.26 B. $417,932.11 C. $403,018.90 D. $311,416.67 E. $381,324.92 9. What is the principal amount of a bond that is repaid at the end of the loan term called? A. Coupon B. Market price C. Accrued price D. Dirty price E. Face value

10. A bond’s annual interest divided by its face value is referred to as the: A. market rate. B. call rate. C. coupon rate. D. current yield. E. yield-to-maturity. 11. A company originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. These bonds are referred to as: A. called bonds. B. converted bonds. C. unprotected bonds. D. fallen angels. E. floaters. 12. Russell’s has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance. This provision is referred to as the _____ provision. A. safeguard B. market C. liquidity D. deferred call E. sinking fund 13. The price at which a dealer will purchase a bond is referred to as the _____ price. A. asked B. face C. call D. put E. bid

14. Blue Water bonds have a face value of $1,000, a coupon rate of 6.5 percent, semiannual interest payments, and mature in 11.5 years. What is the current price of these bonds if the yield to maturity is 6.36 percent? A. $979.20 B. $984.56

C. $1,011.30 D. $1,018.27 E. $1,020.00

15. The 6 percent semiannual coupon bonds of IPO, Inc., are selling for $1,087. The bonds have a face value of $1,000 and mature in 11 years. What is the yield to maturity? A. 5.42 percent B. 4.96 percent C. 4.67 percent D. 3.68 percent E. 5.70 percent 16. Last year, you earned a rate of return of 6.42 percent on your bond investments. During that time, the inflation rate was 1.6 percent. What was your real rate of return? A. 4.69 percent B. 4.80 percent C. 4.83 percent D. 4.74 percent E. 4.71 percent 17. When valuing a stock using the constant-growth model, D1 represents the: A. expected difference in the stock price over the next year. B. expected stock price in one year. C. last annual dividend paid. D. the next expected annual dividend. E. discount rate.

18. A broker is an agent who: A. trades on the floor of an exchange for himself or herself. B. buys and sells from inventory. C. offers new securities for sale to dealers only. D. is ready to buy or sell at any time. E. brings buyers and sellers together.

19. Nu-Tek is expanding rapidly. As a result, the company expects to pay annual dividends of $.62, .80, and $1.05 per share over the next three years, respectively. After that, the dividend is projected to increase by 4 percent annually. What is the current value of this stock if the required return is 16 percent? A. $7.63 B. $9.67 C. $10.46 D. $6.58 E. $8.49 20. River Rock, Inc., just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent? A. $23.60 B. $24.65 C. $25.08 D. $25.50 E. $26.90 21. The internal rate of return is the: A. discount rate that causes a project’s aftertax income to equal zero.

B. discount rate that results in a zero net present value for the project. C. discount rate that results in a net present value equal to the project's initial cost. D. rate of return required by the project's investors. E. project's current market rate of return. 22. The modified internal rate of return is specifically designed to address the problems associated with: A. mutually exclusive projects. B. unconventional cash flows. C. long-term projects. D. negative net present values. E. crossover points.

23. What is the net present value of a project with the following cash flows if the discount rate is 15 percent?

A. -$2,687.98 B. -$1,618.48 C. $1,044.16 D. $1,035.24 E. $9,593.19 24. A project has the following cash flows. What is the payback period?

A. 2.38 years B. 2.49 years C. 2.74 years D. 3.01 years E. 3.33 years

25. A project has the following cash flows. What is the internal rate of return?

A. 11.21 percent B. 10.47 percent C. 10.72 percent D. 8.57 percent E. 9.19 percent

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