Question
1
1 / 1 pts
Which of the following are Amortized type
Loans
Car Loans
Home Mortgages
Student Loans
Correct!
All of these are amortized loans
1 / 1 pts
"By definition, what type of annuity best
describes payments such as rent (assuming the costs do not change over
time)?"
Correct!
annuity due
nonconstant annuity
annuity in arrears
ordinary annuity
1 / 1 pts
Which of the following are factors that
influence the present value of a cash stream?
Timing of the Cash
Flows
Correct!
All of these are factors that influence the value of a
cash stream
Riskiness (the chance
that you will not receive the cash flow in full)
Desired Rate of Return
(or Interest Rate)
0 / 1 pts
Jessica wants to set up an indefinite
scholarship fund that always pays out the same amount of cash. Which of the
following types of annuity is derscribed
You Answered
Annuity Due
Correct answer
Perpetuity
Growing Annuity
Growing Perpetuity
1 / 1 pts
Bob has won a small lottery pool. The lottery
value is supposedly 100,000 dollars. They will be paying him 2,000 per year for
the next 50 years, which has a a PV of only $27,601.49 at 7% interest rate. Bob
can invest money at 8% and they are offering him the choice between $2000 per
year or the $27,601.49 lump sum. Ignoring taxes, which is the better option?
You cannot determine
based on the given information
The payments because
he receives more cash than if he takes the lump sum
Correct!
The Lump sum, because it has a higher PV and FV.
The Lump sum, because
he can reinvest at 8%
0 / 1 pts
"Gomez Electronics needs to arrange
financing for its expansion program. Bank A offers to lend Gomez the required
funds on a loan where interest must be paid monthly, and the quoted rate is 8
percent. Bank B will charge 8.47 percent, with interest due at the end of the
year. What is the difference in the effective annual rates charged by the two
banks"
0.40%
Correct answer
0.17%
You Answered
1.25%
0.30%
0.22%
First compute EAR on 8% compounded monthly.
=(1+(.08/12)^12)=0.083 or 8.3% then subtract from the EAR of 8.47% annually
(which is 8.47%).
0 / 1 pts
"Assume that you can invest to earn a
stated annual rate of return of 12 percent, but where interest is compounded
semiannually. If you make 20 consecutive semiannual deposits of $505 each, what
is the value of the account after your last deposit?
Correct answer
"$18,576.72"
"$28,988.69
"
"$17,900.23
"
"$22,821.19
"
You Answered
"$54,131.50
"
Excel: =FV((0.12/2),20,505) Financial
Calculator: N=20 I= 12/2 PV=0 PMT=505
0 / 1 pts
"In 1958 the average tuition for one year
at an Ivy League school was $1,800. Twenty seven years later, in 1985, the
average cost was $8,689.86. What was the growth rate in tuition over the
27-year period?"
12.0%
Correct answer
6.0%
You Answered
7.0%
4.0%
5.0%
In Excel=RATE(27,0,1800,-8689.86) In Financial
Calculator: N=27 PV= -1800 FV= 8689.86 CPT I
0 / 1 pts
You are buying a car for $457 monthly for 48
months. The interest rate the bank is charging is 1.5%. How much would you have
to pay for the car if you paid it all upfront?
You Answered
$20,895
Correct answer
$21,278
$16,387
$17,900
In Excel =PV(0.015/12,48,457) In Financial
Calculator PMT= $457 I= 15/12 N=48
1 / 1 pts
"If you buy a factory for $250,000 and
the terms are 10 percent down, the balance to be paid off over 30 years at a 10
percent rate of interest on the unpaid balance, what are the 30 equal annual
payments (rounded to the nearest dollar)?"
Correct!
"$23,867 "
"$16,666 "
"$40,982 "
"$31,485 "
"$10,584 "
In Excel=PMT(0.1,30,250000*(1-0.1)) In
Financial Calculator: N=30 PV= (1-0.1)*250,000 I=10 CPT PMT
1 / 1 pts
Andrea is setting up a trust fund for her
grandchildren. She has $400,000 to invest, and she wants the trust fund to
continue indefinitely at the same amount of cash every time. The rate the bank
is offering for her is 4% annually. How much will the yearly payments to her
grandchildren be?
Correct!
$16,000
There is insufficient
data to calculate the yearly payments
$12,000
$8915
This type of payment
stream does not exist
$18,000
=400,000*.04=$16,000
1 / 1 pts
"If the expectations theory of the term
structure of interest rates is correct, and if the other term structure
theories are invalid, and we observe a downward sloping yield curve, which of
the following is a true statement?"
Investors expect
short-term rates to increase in the future.
The maturity risk
premium must be positive.
Correct!
Investors expect short-term rates to decrease in the
future.
Investors expect
short-term rates to be constant over time.
It is impossible to say unless we know whether
investors require a positive or negative maturity risk premium.
1 / 1 pts
"If the Federal Reserve sells $50 billion
of short-term U.S. Treasury securities to the public, other things held
constant, what will this tend to do to short-term security prices and interest
rates?"
Prices will rise and
interest rates will decline.
Prices and interest
rates will both decline.
Correct!
Prices will decline and interest rates will rise.
Prices and interest
rates will both rise.
There will be no
changes in either prices or interest rates.
1 / 1 pts
"Assume that the current yield curve is
upward sloping, or normal. This implies that"
Short-term interest
rates are more volatile than long-term rates.
The economy is at the
peak of a business cycle.
Inflation is expected
to subside in the future.
Correct!
None of the above statements is necessarily implied by
the yield curve given.
Long-term bonds are a
better buy than short-term bonds.
0 / 1 pts
"Interest rates on 1-year, 2-year, and
3-year Treasury bills are 5%, 6%, and 7% respectively. Assume that the pure
expectations theory holds and that the market is in equilibrium. Which of the
following statements is most correct?"
You Answered
"All of these are
correct"
The maturity risk
premium is positive.
Correct answer
Interest rates are expected to rise over the next two
years.
The market expects
one-year rates to be 5.5% one year from today.
1 / 1 pts
Which of the following are factors that
influence the cost of money
Production
Opportunities
Inflation
Correct!
These are all factors that affect the cost of money
Time Preference for
Consumption
Risk
1 / 1 pts
What does this
situation describe?
Ron has 4 kids to feed, and his income is
barely sufficient to cover his monthly expenses. As a result, Ron would rather
have money today than next month.
Low Time preference
for Consumption
High Risk Aversion
Correct!
High time preference for Consumption
Inflation
1 / 1 pts
Which of the following Premiums refers to the
chance that your borrower will be unable to pay their debts on time?
Liquidity Premium
Maturity Risk Premium
(MRP)
Correct!
Default Risk Premium (DRP)
Short Changers Risk
0 / 1 pts
"Assume that a 3-year Treasury note has
no maturity premium, and that the real, risk-free rate of interest is 3
percent. If the T-note carries a yield to maturity of 12 percent, and if the
expected average inflation rate over the next 2 years is 11 percent, what is
the implied expected inflation rate during Year 3?" Round all calculations
to 3 digits for this calculation
Correct answer
5%
11%
12%
3%
You Answered
8%
3% + ((11% + 11% +
Infl.3)/3) = 12%
22% + Infl.3 = 27% => Infl.3 = 5%;
check: (11% + 11% + 5%)/3 = 27%/3 = 9%
3% + 9% = 12%
1 / 1 pts
You are considering
the following investment.
You must pay $114 dollars to buy ABV Stock.
You expect to be able to sell it for $120 dollars in one year. You will also
recieve a dividend of $15. What is your expected Yield?
Correct!
18.4%
12.5%
17.55%
13.3%
Yield=(120-114+15)/114
1 / 1 pts
Your company has an AAA- Corporate Bond
Rating. The market rate on your bonds is 5.1% another company with AAA
rating has a 4.4% rate and a 1.2% default risk premium. What is your default
risk premium?
Correct!
1.9%
You cannot calculate
based on information provided.
2.1%
3.2%
First, calculate the Risk Free Rate=4.4-1.2
=3.2 Then calculate your DRP=5.1%-3.2%=1.9%
1 / 1 pts
You are given the
following breakdown on an interest rate.
Default Risk Premium= 0.2%
Maturity Risk Premium = 0.7%
Liquidity Premium =4%
Last Years Inflation=1%
Annual Interest Rate= 8%
Loan Length = 40 Years
What is the risk free rate that you should expect
on a Treasury Bill?
Correct!
3.1%
2.7%
3.5%
4.6%
RFR=8%-4%-0.7%-0.2% = 3.1%
0 / 1 pts
You have a required yield of 8% from your
investments. You can buy a BVN stock for $212.50, and expect it to pay $30
dollars in dividends. Based on that information, what is the amount you would
need to be able to sell it for in one year?
$230
Cannot Be Determined
Correct answer
$199.50
You Answered
$185.50
First set up the equation 8%= (30+(SP -
212.5))/212.5 Then Rearrange and simplify. 8%*212.5= 30+ (SP -212.5) SP= 17 -
30 + 212.5 = $199.50
1 / 1 pts
According to market segmentation theory, every
borrower and every lender has a preferred maturity, and the slope of the yield
curve depends on the supply of and the demand for funds in:
the long term market
None of these
accurately depict market segmentation theory
the short term market
Correct!
the long term market relative to the short term market
1 / 1 pts
Suppose someone offered you your choice of two
equally risky annuities, each paying $5,000 per year for 5 years. One is an
annuity due, while the other is a regular (or deferred) annuity. If you are a
rational wealth-maximizing investor which annuity would you choose?
Correct!
The annuity due
Without information
about the appropriate interest rate, we cannot find the values of the two
annuities, hence we cannot tell which is better
The deferred annuity
Either one as they
have the same present value
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