Reference no: EM132607767

1. Which of the following represents the present value annuity factor?

a) (1+r)

b) [(1+r)^n-1]

c) 1/[1-(1+r)^n]

d) [1-(1/(1+r^n)]/r

e) [(1-r)^n-1]/r

2. Given a perpetual bond with a price of $30 and an annual interest rate of 8%, what is the quarterly payment on this bond?

a) $0.60

b) $0.80

c) $1.20

d) $1.60

e) $2.40

3. We just borrowed $10,000 from Uncle Same and we agree to pay him $500 every month for 2 years. What are the APR and the EAR that our Uncle Sam is charging us?

a) 5%; 60%

b) 5%; 79.79%

c) 18.16%; 19.75%

d) 9.08%;9.43%

e) Insufficient information given to calculate APR and EAR

4. Company X just issued 200,000 shares of preferred stock at a price of $25 per share. The company has promised to pay a quarterly dividend, with the first dividend of $0.25 occurring 3 months from now. These dividends are expected to grow at a constant rate each year. Given that the interest rate is 10%, what is the growth rate on this preferred stock?

a) 4%

b) 6%

c) 8%

d) 10%

e) 12%

5. An investment pays $10 at the beginning of each month. What kind of cash flow stream is this ?

a) Ordinary annuity

b) Annuity due

c) Perpetuity

d) Future value

e) Annuity due or perpetuity

6. A car leasing company gave you a lease at an interest rate of 12%. In Canada, what is the name given to this interest rate?

a) Lease rate

b) Effective annual rate

c) Annual percentage rate

d) Discount rate

e) Both a and c

7. We have an investment that will yield $100 in Year 1, $200 in year 2 and $300 in Year 3. The forecasted interest rates for the next 3 years are 6% over the first year, 6.5% over the second year and 5.5% over the third year. What is the value of this investment today?

a) $529.96

b) $566.49

c) $526.16

d) $523.39

e) $600.00

8. Mr. Sweeney has a 12 year old nephew, Todd, who is trying o save up for a $300 bike. Mr. Sweeney wishes to help Todd, but he also wants to teach him a lesson in hard work and the value of money. Mr. Sweeney and Todd strike the following bargain: each week Todd will mow the lawn for Mr. Sweeney, and in return, Mr. Sweeney will deposit $25 in Todd's savings account, which pays an effective annual interest rate of 7%. How many months will it take Todd to save up enough money to buy the bike?

a) 2.25

b) 2.98

c) 3.03

d) 9.01

e) 11.91

9. You have the following four investment opportunities. Suppose you only have $2,000, so you can only choose one of these four investments. Based on the EAR on each investment, which one will you invest in?

Investment A Investment B Investment C Investment D

Present value $2,000 $2000 $2000 $2000

Payment $500 $125 $41.67 $9.60

Number of years 5 5 5 5

Frequency of payments annual quarterly monthly weekly

a) A is the best investment

b) B is the best investment

c) C is the best investment

d) D is the best investsment

e) All four investments pay a total of approximately $2500, and therefore they are equivalent

10. You just borrowed $1000 from Mr. Loan Shark. Mr. Shark requires you to pay $150 per week for the next 10 weeks. What is the effective interest rate on this loan?

a) 57.64%

b) 5764%

c) 8.14%

d) 15%

e) 50%