FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Bond Valuation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

You would like to establish a trust fund that will provide $120,000 a year forever for your heirs.The trust fund is going to be invested very conservatively so the expected rate of return is only 5.75 percent.How much money must you deposit today to fund this gift for your heirs?

A) $2,086,957
B) $2,121,212
C) $2,300,000
D) $2,458,122
E) $2,500,000

F) A) and E)
G) B) and E)

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

Which one of these statements related to growing annuities and perpetuities is correct?

A) The cash flow used in the growing annuity formula is the initial cash flow at time zero.
B) Growth rates cannot be applied to perpetuities if you wish to compute the present value.
C) The future value of an annuity will decrease if the growth rate is increased.
D) An increase in the rate of growth will decrease the present value of an annuity.
E) The present value of a growing perpetuity will decrease if the discount rate is increased.

F) A) and B)
G) C) and D)

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

What is the future value of $1,200 a year for 40 years at 8 percent interest? Assume annual compounding.

What is the effective annual rate if a bank charges you 8.25 percent compounded quarterly?

The interest rate that is quoted by a lender is referred to as which one of the following?

Theresa adds $1,500 to her savings account on the first day of each year.Marcus adds $1,500 to his savings account on the last day of each year.They both earn 6.5 percent annual interest.What is the difference in their savings account balances at the end of 35 years?

Samuelson Engines wants to save $750,000 to buy some new equipment four years from now.The plan is to set aside an equal amount of money on the first day of each quarter starting today.The firm can earn 4.75 percent on its savings.How much does the firm have to save each quarter to achieve its goal?

The government has imposed a fine on the Corner Tavern.The fine calls for annual payments of $125,000, $100,000, $75,000, and $50,000, respectively, over the next four years.The first payment is due one year from today.The government plans to invest the funds until the final payment is collected and then donate the entire amount, including the investment earnings, to help the local community shelter.The government will earn 5.5 percent on the funds held.How much will the community shelter receive four years from today?

On this date last year, you borrowed $3,400.You have to repay the loan principal plus all of the interest six years from today.The payment that is required at that time is $6,000.What is the interest rate on this loan?

You are the beneficiary of a life insurance policy.The insurance company informs you that you have two options for receiving the insurance proceeds.You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years.You can earn 6 percent on your money.Which option should you take and why?

You need $25,000 today and have decided to take out a loan at 7 percent for five years.Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis.

Trish receives $450 on the first of each month.Josh receives $450 on the last day of each month.Both Trish and Josh will receive payments for next four years.At a 9.5 percent discount rate, what is the difference in the present value of these two sets of payments?

You are scheduled to receive annual payments of $5,100 for each of the next 7 years.The discount rate is 10 percent.What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

You have been investing $250 a month for the last 13 years.Today, your investment account is worth $73,262.What is your average rate of return on your investments?

You buy an annuity that will pay you $24,000 a year for 25 years.The payments are paid on the first day of each year.What is the value of this annuity today if the discount rate is 8.5 percent?

Consider a firm with a contract to sell an asset 3 years from now for $90,000.The asset costs $71,000 to produce today.At what rate will the firm just break even on this contract?

Explain the difference between the effective annual rate (EAR) and the annual percentage rate (APR).Of the two, which one has the greater importance and why?

A monthly interest rate expressed as an annual rate would be an example of which one of the following rates?

A wealthy benefactor just donated some money to the local college.This gift was established to provide scholarships for worthy students.The first scholarships will be granted one year from now for a total of $35,000.Annually thereafter, the scholarship amount will be increased by 5.5 percent to help offset the effects of inflation.The scholarship fund will last indefinitely.What is the value of this gift today at a discount rate of 9 percent?

You have just purchased a new warehouse.To finance the purchase, you've arranged for a 30-year mortgage loan for 80 percent of the $2,600,000 purchase price.The monthly payment on this loan will be $12,200.What is the effective annual rate on this loan?