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**EXAMINATION NUMBER**

**06058501**

**Future Cash Flow Valuation**

1. What is the present value of $3,000, discounted at 8 percent interest per period, for two periods? (Round your answer to the nearest cent.)

** A. **$2,777.78 **C. **$3,499.20

** B. **$2,572.02 **D. **$3,240.00

2. The stated interest payment made on a bond is called the

** A. **yield to maturity.

** B. **maturity.

** C. **face value.

** D. **coupon.

3. An ordinary annuity of $500 per period, discounted at a rate of 8 percent per period for 3 periods, has a present value of $1,288.55. If this same annuity was an annuity due, what would its present value be? (Round your answer to the nearest cent.)

**A. **$1,288.55

** B. **$1,500.00

**C. **$1,391.63

**D. **$1,788.55

4. The relationship between real returns, nominal returns, and inflation is commonly

referred to as the

**A. **dirty price.

**B. **Fisher effect.

**C. **Treasury yield curve.

**D. **bid-ask spread.

5. On an investment of $2,000, you’ll earn 10 percent interest per year compounded

semiannually. What is the future value of this investment after one year?

**A. **$2,205 **C. **$2,420

** B. **$2,100 **D. **$4,500

6. What is the future value of a $10,000 investment, earning 12 percent interest

per period, after three periods? (Round your answer to the nearest cent.)

** A. **$7,117.80 **C. **$12,544.00

** B. **$11,200.00 **D. **$14,049.28

7. Where does *most *bond trading occur?

** A. **At the corporate headquarters of Moody’s

** B. **In the New York Stock Exchange (NYSE)

** C. **Electronically, over the counter

** D. **At the corporate headquarters of Standard and Poor’s

8. Suppose that you buy a $5,000 bond with a 12 percent annual coupon, payable

semiannually on January 1 and July 1. On both January 1 and July 1, the bondholder

will receive $300, for a total annual interest payment of $600 ($300 + $300).

Based on the principal and accrued interest only, how much would you expect

to pay to purchase this bond on May 1?

**A. **$5,200 **C. **$5,300

** B. **$5,000 **D. **$5,600

9. Today, you deposit $1,000 into an account that pays 12 percent interest annually.

How much will you have in the account after 4 years? (Round your answer to the

nearest cent.)

** **

** A. **$635.52 **C. **$1,120.00

** B. **$1,254.40 **D. **$1,573.52

10. A type of loan that’s paid off by making regular principal reductions, usually according to a specified schedule, is called a(n)

** **

** A. **annuity due. **C. **amortizing loan.

** B. **debenture. **D. **corporate bond.

11. What is the present value of the right to receive four equal payments (ordinary

annuity) of $500 per period, discounted at a rate of 10 percent per period? (Round

your answer to the nearest cent.)

**A. **$341.51 **C. **$1,584.94

** B. **$454.55 **D. **$732.05

12. On an initial investment of $1,000, you can earn 12 percent interest per year

compounded annually, or 12 percent interest per year compounded semi annually.

Which of the following statements is *correct?*

* *

* ***A. **12 percent per year, compounded annually, is the better interest rate for

the investment.

** B. **12 percent per year, compounded semiannually, is the better interest rate

for the investment.

** C. **There’s no difference between the two interest rates; both rates will produce

the same future value.

** D. **It isn’t possible to determine the future value of this investment based on

the information provided.

13. The payments made by a corporation to shareholders, either in cash or in stock,

are called

** A. **dividends. **C. **cash flows.

** B. **capital gains. **D. **bond yields.

14. What is the future value of a $1,500 investment, earning 10 percent interest

per period, after two periods? (Round your answer to the nearest cent.)

** **

** A. **$1,650.00 **C. **$1,815.00

** B. **$1,363.63 **D. **$1,239.67

15. A stock’s expected cash dividend divided by its current price is called the

** **

** A. **dividend yield. **C. **constant growth.

** B. **capital gains yield. **D. **ask price.

16. Today, you deposit $6,000 into an account that pays 10 percent annually. In one

year, you’ll deposit another $4,000 in the account. How much will you have in the

account after two years?

** **

** A. **$10,600 **C. **$10,000

** B. **$11,660 **D. **$11,000

17. What is the present value of $2,200, discounted at 10 percent interest per period,

for one period? (Round your answer to the nearest cent.)

** **

** A. **$2,420.00 **C. **$1,818.18

** B. **$2,000.00 **D. **$1,980.00

18. Which of the following statements about stock trading is *correct?*

** **

** A. **The NASDAQ is a computer network, with no physical location for trading.

** B. **The number of NYSE exchange members is unlimited.

** C. **The NASDAQ uses a specialist system for actively traded stocks.

** D. **The NYSE does not have a physical location for stock trading activities.

19. You want to invest money for 3 years in an account that pays 7 percent interest

annually. How much would you need to invest today to reach a future goal of $5,000?

(Round your answer to the nearest cent.)

** **

** A. **$4,650.00 **C. **$4,762.90

** B. **$6,125.22 **D. **$4,081.49

20. What is the present value of the right to receive four equal payments (annuity due)

of $1,000 per period, discounted at a rate of 10 percent per period? (Round your

answer to the nearest cent.)

** **

** A. **$1,909.09 **C. **$1,464.10

** B. **$3,486.85 **D. **$2,486.85

Solution Description

**Future Cash Flow Valuation**

1. What is the present value of $3,000, discounted at 8 percent interest per period, for two periods? (Round your answer to the nearest cent.)

** A. **$2,777.78 **C. **$3,499.20

** &n
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