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1. Which statement is correct if a U.S. Treasury bond pays a lump sum of $1,000 3 years from today and the nominal interest rate is 6% semiannual compounding?
a) The periodic interest rate is greater than 3%. b) The present value would be greater if the lump sum were discounted back for more periods. c) The present value of the $1,000 would be smaller if interest is compounded monthly rather than semiannually. d) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.
2. Unsaved You are analyzing the potential value of an investment by calculating the present value of expected cash flows. Which of the following circumstances would lower the calculated value of the investment?
a) Cash flow risk decreases b) Cash flows are greater in the earlier years c) The discount rate decreases d) The discount rate increases
Discuss the modern quantity theory and the liquidity preference theory. What are three ways to calculate the future value of an annuity?
Maplewood Supply received a $5,390 invoice dated 4/15/10. The $5,390 included $390 freight. Terms were 3/10, 2/30, n/60. a. If Maplewood pays the invoice on April 27, what will it pay? If Maplewood pays the invoice on May 21, what will it pay?
Abe made the following transactions in a mutual fund: The fund paid a dividend of $2 per share
A call option on a stock, with time to maturity of 2 months and strike price of $25.67, is currently trading at a premium of $1.78 per share. If you buy options on 20,000 shares (200 contracts), and then at maturity the stock is trading at $22.76, wh..
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $41,000; it is now five years old, and it has a current market value of $18,000. The old oven is being depreciated over a 10-year life toward..
Hickock Mining is evaluating when to open a gold mine. What is the value of the option to wait?
Ben purchased 100 shares of stock from the Frankfurt (Germany) Stock Exchange at a price of €52 per share when the exchange rate was €1 = $1.30. He sold the shares less than a year later at a price of €63 per share when the exchange rate was €1 = $1...
KADS, Inc., has spent $370,000 on research to develop a new computer game. The firm is planning to spend $170,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; What will the ..
Klingon Widgets, Inc., purchased new cloaking machinery three years ago for $6 million. The machinery can be sold to the Romulans today for $5.2 million. Klingon’s current balance sheet shows net fixed assets of $4 million, current liabilities of $77..
Explain why everyone is not affected in exactly the same way by the services capes.
A 2,000 square foot house in New Jersey costs $1,725 each winter to heat with its existing oil-burning furnace. For an investment of $5,000, a natural gas furnace can be installed, and the winter heating bill is estimated to be $1,000. If the homeown..
A boat leaves the entrance of a harbor and travels 57 miles on a bearing of N 11 E. How many miles north and how many miles east from the harbor has the boat traveled? A) 57 mi N, 57 mi E B) 56 mi N, 10.9 mi E C) 293.2 mi N, 11.1 mi E D) 10.9 mi N, 5..
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