Interest rates are given as annual rates if semiannual

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Reference no: EM13623859

1. Interest rates are given as annual rates. If semiannual (twice a year) compounding is being used, then you would make the following adjustments:

  • Double the rate and double the number of years.
  • Double the rate and halve the number of years.
  • Halve the rate and halve the number of years.
  • Halve the rate and double the number of years.

2. $10,000 will be received exactly 10 years from today. The following statement is true:

  • If the interest rate increases, so does the present value of the $10,000.
  • If the interest rate increases, the present value of the $10,000 decreases.
  • It is worth $10,000 today.
  • It will have a present value greater than $10,000.

 

3. Suppose a zero-coupon bond is selling for $614.00 today. It promises to pay $1,000 in exactly 10 years with annual compounding. Its annual rate of return would be about ____.

  • 4%
  • 5%
  • 6%
  • 7%

4. the effective annual percentage rate may be different that the stated APR (annual percentage rate) because:

  • compounding occurs more often than once a year.
  • extra fees are added to most loans.
  • banks are allowed to hide the real cost of borrowing.
  • the APR assumes semiannual compounding.


5. If we make the assumption that a company's dividends grow at some constant rate, then we can value the stock as:

  • a growing perpetuity.
  • a growing annuity.
  • a perpetuity.
  • an annuity.

6. Common stock that pays cash dividends can be viewed as:

  • an annuity-regularly spaced payments of the same dollar amount for a fixed number of periods.
  • a perpetuity-regularly spaced payments of the same dollar amount that continue indefinitely.
  • similar to a perpetuity but with irregular spacing of the dividends.
  • similar to a perpetuity but with dividends that change amount.

7. E.I. du Pont de Nemours & Co. has an issue of $4.50 preferred stock outstanding. It is currently selling for $108. What rate of return are investors requiring?

  • 4.17%
  • 4.5%
  • 9%
  • 24%.

 

8. An ordinary annuity has its first payment ______, but an annuity due has its first payment _________.

  • at the beginning of the period; at the beginning of the period.
  • at the beginning of the period; at the end of the period.
  • at the end of the period; at the end of the period.
  • at the end of the period; at the beginning of the period.

9. Zeta Corporation just paid a $2.00 dividend. Analysts believe that Zeta Corporation's dividend will grow by 20% next year, and then settle into a constant growth regime at 5% per year into the future. If investors assign a required rate of return of 12% to Zeta's stock, what should the stock sell for today?

  • $30.00
  • $32.14
  • $34.29
  • $36.00

10. Simple interest means that:

  • the interest rate is the same every period.
  • the dollar amount of interest is the same every period.
  • interest is only paid once a year.
  • the compounding periods are annual.

Reference no: EM13623859

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