Reference no: EM133061482

Please help me answer, thank you. 

Question 1:

Based on the Rule 72, the time to double your money at 6.5% interest is (rounded):

1. 11
2. 6.5
3. 8
4. 10

Question 2:

All other things being equal, the interest earned over the life of an investment on an annuity due will be lower than the interest earned on an annuity.

1. True
2. False

Question 3:

What is the total holding period return on an stock you purchase for $25, earn $1.50 and dividends, and sell for $32 at the end of 1 year?

1. 34%
2. 6%
3. 28%
4. 40%

Question 4:

An investment with a larger standard deviation means that its actual return is more likely to be further (more risky) from its expected return.

1. True
2. False
3. Depends on inflation

Question 5:

The higher the compound rate, the higher the future value of a dollar?

1. True
2. False 
3. Depends on default risk of the investment.

Question 6:

A plot/graph of the positive relation between systematic risk and expected return is called:

1. Security market line
2. Standard deviation and width of the normal distribution.
3. Covariance graph
4. Capital asset pricing model

Question 7:

Based on the Year 1 line from the following amortization schedule, what is the principal paid in Year 2 and interest paid in Year 3? (Hint: figure out the interest rate first).

Year   Beginning Balance   Total annual payment   Interest paid    Principal paid     Ending balance

1          $10,000                       $3,672.09                    $500                $3,172.09          $6,827.91

2

3

1. $3,330.69 and $174.86
2. $3,172.09 and $341.40
3. $3,330.69 and $341.40
4. $3,672.69 and $174.86
5. $3,672.69 and $500.00

Question 8:

The actual interest rate paid (or earned), which takes compounding into account is called:

1. Effective annual interest rate
2. Quoted interest rate
3. Interest rate per period
4. Annual percentage rate

Question 9:

Taking time value of money into consideration, the present value of a perpetuity (PV=PMT/R) is based more on cash flows in later years (years 20 and beyond) than earlier cash flows (years 1-20)?

1. False
2. True
3. Depends on the interest rate
4. No answer text provided

Question 10:

A beta of 1 means that the stock has no systematic risk and a beta of 0 means that the stock has the same systematic risk as the market

1. False
2. True
3. No answer text provided

Question 11:

If investors believe interest rates will rise over time, the yield curve will be:

1. Normal
2. Inverted
3. Flat
4. Variable

Question 12:

What is the present value of $1 to be received in 10 years discounted at 0%, 5%, and 20% interest rates respectively?

1. $1, $0.61, $0.16
2. $0.16, $0.61, $1
3. $0.61, $1, $0.16
4. $1, $0.25, $0.16

Question 13:

Standard deviation is measure of total risk while BETA is measure of systematic, undiversifiable risk.

1. True
2. False
3. Depends on the variance

Question 14:

Because the diversification benefit from adding another asset declines as the total number of assets in the portfolio increase, most diversification benefit can be achieved with as few as 15 or 20 assets.

1. True
2. False

Question 15: 

What is the risk of a particular security that remains after diversification?

1. Systematic risk
2. Portfolio risk
3. Stand-alone risk
4. Diversifiable risk

Question 16:

Which of the following is not one of the bond theorems about bond pricing?

1. A well-diversified portfolio has a 50/50 split between stocks and bonds.
2. Bond prices are inversely related to interest rate movements.
3. For a given change in interest rates, prices on longer-term bonds change more than prices of shorter-term bonds.
4. For a given change in interest rate, prices of lower-coupon bonds change more than prices of higher-coupon bonds. 

Question 17:

What is the value of the following growing perpetuity if the payment in year 1 is $85, the interest rate is 6%, and the growth rate per period is 3%.

1. 2833
2. 1200
3. 1537
4. 2500
5. 3122

Question 18:

Investment grade bonds have a ____ risk of default and rated ____ or above, while junk bonds have _____ risk of default and are related _____ or below.

1. Low, BBB, high, BB
2. High, BBB, low, BB
3. Low, B, low, CCC
4. Low, A, high, BBB

Question 19:

Which of the following bonds can be exchanged for shares of common stock at the discretion of the bondholder?

1. Convertible bond
2. Vanilla Bond
3. Junk Bond
4. Callable Bond

Question 20: 

A bond will sell ____ when the coupon rate exceeds the market interest rate, _____ when the coupon rate is less than the market interest rate, and _____ when the coupon rate is equal to the market interest rate

1. At a premium; at a discount; equal to the par value
2. At a premium; equal to the par value; at a discount
3. Equal to the par value; at a premium; at a discount
4. At a discount; at a premium; equal to the par value

Question 21:

You open a retirement savings account where you deposit $100 per month in an account earning 6% interest (compounded monthly). You plan to retire in 20 years. How much will have in the account when you retire?

1. $46,204
2. $41,367
3. $49,998
4. $54,787
5. $58,235

Question 22:

You borrow $10,000 from a bank and plan to repay the loan in 24 equal monthly installments. If the bank charges 12 percent annual interest on the loan, what monthly payment will be required?

1. $470.73
2. $485.63
3. $459.50
4. $463.85
5. $448.52

Question 23:

What is the rate of return on an investment of $50,000 if the company expects to receive an annuity of $7,500 each year for the next 15 years?

1. 12.4%
2. 8.2%
3. 9.5%
4. 15.3%
5. 18%

Question 24: 

The Petry Family is looking to purchase a home and can only afford payments of $1,600 per month. They can qualify for a 30-year fixed rate loan at 6.5%. What loan amount do they qualify for?

1. $253,137
2. $225,645
3. $230,125
4. $267,532
5. $279,978

Question 25:

You borrow $18,750 from a bank at 8% interest compounded monthly and can afford $300 monthly payments. How many months will it take for you to pay back the loan in full (rounded)?

1. 81.1 months
2. 62.7 months
3. 74.3 months
4. 88.9 months
5. 97.2 months

Question 26:

What are you willing to pay for an investment offering the following cash flows, given a discount rate of 7%? Year 1 = -25; Year 2 = 50; Year 3 = 115.

1. $114.18
2. $127.90
3. $162.78
4. $186.25

Question 27:

Hewitt Packing Company plans to issue bonds with a 10-year maturity, a $1,000 par value, a 14 percent coupon rate, and semiannual interest payments. Bonds of the same risk are currently having a yield to maturity of 12 percent. What is the value of these Hewitt Packing Company bonds?

1. $1,114.70
2. $987.40
3. $1,050.65
4. $1,512.36

Question 28:

Linville Corporation issued 12-year, par $1,000 bonds ten-years ago at a coupon rate of 7 percent. If these bonds currently sell for 90 percent of par value, what is its yield to maturity (YTM)?

1. 8.35%
2. 6.41%
3. 11.56%
4. 12.99%