Reference no: EM132909883

Questions -

Q1. Dan's just paid an annual dividend of $6 per share. What is the dividend expected to be in five years if the growth rate is 4.2%?

A: $7.07

B: $7.37

C: $7.14

D: $7.44

Q2. What is the present value of the following payment stream, discounted at 8% annually: $1,000 at the end of year 1, $2,000 at the end of year 2, and $3,000 at the end of year 3?

A. $5,022.10

B. $5,144.03

C. $5,423.87

D. $5,520.00

Q3. If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with monthly payments of $965.55, how much interest is paid over the life of the loan?

A. $120,000

B. $162,000

C. $181,458

D. $227,598

Q4. How much interest will be earned in the next year on an investment paying 12% compounded annually if $100 was just credited to the account for interest?

A. $88

B. $100

C. $112

D. $200

Q5. How long must one wait (to the nearest year) for an initial investment of $1,000 to triple in value if the investment earns 8% compounded annually?

A. 9.81 years

B. 14.27 years

C. 22.01 years

D. 25.00 years

Q6. A furniture store is offering free credit on purchases over $1,000. You observe that a big-screen television can be purchased for nothing down and $4,000 due in one year. The store next door offers an identical television for $3,650 but does not offer credit terms. Which statement below best describes the cost of the "free" credit?

A. 8.75%

B. 9.13%

C. 9.59%

D. 0%

Q7. A perpetuity of $5,000 per year beginning today is said to offer a 15% interest rate. What is its present value?

A. $33,333.33

B. $37,681.16

C. $38,333.33

D. $65,217.39

Q8. Assume you are making $989 monthly payments on your amortized mortgage. The amount of each payment that is applied to the principal balance:

A. decreases with each succeeding payment.

B. increases with each succeeding payment.

C. is constant throughout the loan term.

D. fluctuates monthly with changes in market interest rates.

Q9. An interest rate that has been annualized using compound interest is termed the:

A. simple interest rate.

B. annual percentage rate.

C. discounted interest rate.

D. effective annual interest rate.

Q10. What is the APR on a loan that charges interest at the rate of 1.4% per month?

A. 10.20%

B. 14.00%

C. 16.80%

D. 18.16%

Q11. Cash flows occurring in different periods should not be compared unless:

A. interest rates are expected to be stable.

B. the flows occur no more than one year from each other.

C. high rates of interest can be earned on the flows.

D. the flows have been discounted to a common date.

Q12. Which one of the following will increase the present value of an annuity, other things equal?

A. Increasing the interest rate

B. Decreasing the interest rate

C. Decreasing the number of payments

D. Decreasing the amount of the payment

Q13. Assume a bond is currently selling at par value. What will happen if the bond's expected cash flows are discounted at a rate lower than the bond's coupon rate?

A. The price of the bond will increase.

B. The coupon rate of the bond will increase.

C. The par value of the bond will decrease.

D. The coupon payments will be adjusted to the new discount rate.

Q14. What happens to a discount bond as the time to maturity decreases?

A. The coupon rate increases.

B. The bond price increases.

C. The coupon rate decreases.

D. The bond price decreases.

Q15. The current yield of a bond can be calculated by:

A. multiplying the price by the coupon rate.

B. dividing the price by the annual coupon payments.

C. dividing the price by the par value.

D. dividing the annual coupon payments by the price.