Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is 1)
referred to as the:
A) present value.
B) complex value.
C) discounted value.
D) true value.
E) future value.

2) Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest. How 2)
much interest will you earn over the next 5 years?
A) $120.00 B) $483.59 C) $90.00 D) $450.00 E) $492.27

3) Katie's Dinor spent $113,800 to refurbish its current facility. The firm borrowed 65 3)
percent of the refurbishment cost at 6.82 percent interest for six years. What is the
amount of each monthly payment?
A) $1,333.33
B) $1,108.91
C) $1,282.16
D) $1,087.06
E) $1,254.73

4) At the end of this month, Les will start saving $200 a month for retirement through his 4)
company's retirement plan. His employer will contribute an additional $.50 for every
$1.00 that he saves. If he is employed by this firm for 30 more years and earns an
average of 8.25 percent on his retirement savings, how much will he have in his
retirement account 30 years from now?
A) $589,406.19
B) $503,289.01
C) $540,311.67
D) $470,465.70
E) $401,005.25

5) So you can retire early, you have decided to start saving $500 a month starting one 5)
month from now. You plan to retire as soon as you can accumulate $1 million. If you can
earn 5 percent on your savings, how many years will it be before you can retire?
A) 33.87 years
B) 44.76 years
C) 44.71 years
D) 33.39 years
E) 42.87 years

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 6) Your aunt loaned you money at 1.00 percent interest per month. What is the APR of this 6)
loan?
A) 16.00 percent
B) 11.88 percent
C) 12.00 percent
D) 16.28 percent
E) 12.16 percent

7) What is the effective annual rate of 9.6 percent compounded semiannually? 7)

A) 9.92 percent
B) 9.79 percent
C) 9.83 percent
D) 9.68 percent
E) 9.71 percent

8) You would like to establish a trust fund that would provide annual scholarships of 8)
$100,000 forever. How much would you have to deposit today in one lump sum to
achieve this goal if you can earn a guaranteed 4.5 percent rate of return?
A) $1,678,342
B) $2,222,222
C) $1,620,975
D) $1,800,000
E) $2,413,435

9) Good Guys will pay you $2,500 a year for 10 years in exchange for $31,300 today. What 9)
interest rate will you earn on this annuity?
A) 5.50 percent
B) 2.38 percent
C) 1.67 percent
D) 2.55 percent
E) 3.89 percent

10) You want to purchase a new condominium that costs $287,500. Your plan is to pay 25 10)
percent down in cash and finance the balance over 15 years at 3.75 percent. What will be
your monthly mortgage payment including principal and interest?
A) $1,333.33
B) $1,568.07
C) $1,708.16
D) $1,406.11
E) $1,221.43

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11) Perpetuities have: 11)
A) irregular payments but constant payment periods.
B) no application in today's world.
C) equal payments and a set number of equal payment periods.
D) less value than comparable annuities.
E) equal payments and an infinite life.

12) You're trying to save to buy a new car valued at $48,690. You have $38,000 today that 12)
can be invested at your bank. The bank pays 3.7 percent annual interest on its accounts.
How long will it be before you have enough to buy the car for cash? Assume the price of
the car remains constant.
A) 9.29 years
B) 4.67 years
C) 7.08 years
D) 5.13 years
E) 6.82 years

13) Sixty years ago, your grandparents opened two savings accounts and deposited $250 in 13)
each account. The first account was with City Bank at 3.6 percent, compounded
annually. The second account was with Country Bank at 3.65 percent, compounded
annually. Which one of the following statements is true concerning these accounts? (Do
not round intermediate calculations.)
A) The City Bank account has paid $48.19 more in interest than the Country Bank
account.
B) The Country Bank account has paid $61.30 more in interest than the City Bank
account.
C) The City Bank account is currently worth $2,076.42.
D) The Country Bank account has paid $72.24 more in interest than the City Bank
account.
E) The Country Bank account is currently worth $2,170.32.

14) When you were born, your parents opened an investment account in your name and 14)
deposited $1,500 into the account. The account has earned an average annual rate of
return of 5.3 percent. Today, the account is valued at $42,856. How old are you?
A) 71.47 years
B) 70.67 years
C) 64.91 years
D) 61.08 years
E) 67.33 years

15) Kevin just deposited $13,000 into his savings account at Traditions Bank. The bank will 15)
pay .87 percent interest, compounded annually, on this account. How much interest on
interest will he earn over the next 5 years?
A) $9.49 B) $9.73 C) $8.92 D) $9.93 E) $8.67

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16) Computing the present value of a future cash flow to determine what that cash flow is 16)
worth today is called:
A) compounding.
B) discounted cash flow valuation.
C) factoring.
D) simple cash flow valuation.
E) time valuation.

17) Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide 17)
him with the largest future value?
A) 3 percent interest, compounded annually
B) 3 percent simple interest
C) 4 percent simple interest
D) 2 percent interest, compounded annually
E) 4 percent interest, compounded annually

18) What condition must exist if a bond's coupon rate is to equal both the bond's current 18)
yield and its yield to maturity? Assume the market rate of interest for this bond is
positive.
A) The market price must exceed the par value by the value of one year's interest.
B) The bond must be priced at par.
C) The clean price of the bond must equal the bond's dirty price.
D) The bond must be a zero coupon bond and mature in exactly one year.
E) There is no condition under which this can occur.

19) Russell's has a bond issue outstanding. The issue's indenture provision prohibits the firm 19)
from redeeming the bonds during the first five years following issuance. This provision
is referred to as the ________ provision.
A) liquidity
B) market
C) deferred call
D) safeguard
E) sinking fund

20) Which one of the following bonds is the most sensitive to changes in market interest 20)
rates?
A) 5-year, 8 percent coupon
B) 10-year, zero coupon
C) 10-year, 5 percent coupon
D) 5-year, 5 percent coupon
E) 5-year, zero coupon

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21) What is the price of a $1,000 face value bond if the quoted price is 102.1? 21)
A) $1,021.00
B) $1,020.01
C) $102.10
D) $1,002.10
E) $1,020.10

22) A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of 22)
$74.50 every year. What is the coupon rate?
A) 7.45 percent
B) 6.76 percent
C) 7.12 percent
D) 7.00 percent
E) 8.14 percent

23) A $1,000 face value bond currently has a yield to maturity of 8.22 percent. The bond 23)
matures in five years and pays interest semiannually. The coupon rate is 7.5 percent.
What is the current price of this bond?
A) $1,005.26
B) $989.60
C) $970.96
D) $948.01
E) $1,010.13

24) A 12-year, annual coupon bond is priced at $1,102.60. The bond has a $1,000 face value 24)
and a yield to maturity of 5.33 percent. What is the coupon rate?
A) 5.74 percent
B) 6.28 percent
C) 5.09 percent
D) 6.51 percent
E) 5.33 percent

25) The 6 percent semiannual coupon bonds of IPO, Inc., are selling for $1,087. The bonds 25)
have a face value of $1,000 and mature in 11 years. What is the yield to maturity?
A) 3.68 percent
B) 5.70 percent
C) 4.96 percent
D) 5.42 percent
E) 4.67 percent

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Answer Key
Testname: EXAMPLE PAPER CF EXAM 2

1) E
2) D
3) E
4) D
5) B
6) C
7) C
8) B
9) E
10) B
11) E
12) E
13) B
14) C
15) D
16) B
17) E
18) B
19) C
20) B
21) A
22) A
23) C
24) D
25) C