Question 13 THE CHEAT AND STEAL BANK OFFERS AN INTEREST RATE ON DEPOSITS OF 4% C

Question

Question 13

THE CHEAT AND STEAL BANK OFFERS AN INTEREST RATE ON DEPOSITS OF 4% COMPOUNDED MONTHLY. IF YOU DEPOSIT $2,000 INTO THIS BANK TODAY, HOW MUCH WILL YOU HAVE IN 10 YEARS?

$2,981.67

$4,208.32

$2,859.18

$3,001.28

Question 14

CONSIDER THE MIXED-STREAM OF CASH FLOWS IN THE FOLLOWING TABLE:

AT A DISCOUNT/INTEREST RATE OF 10%, THE PRESENT VALUE (AT TIME 0) OF THE CASH FLOWS IS _______.

$3,000

$1,555.97

$1,753.29

$1,628.41

Question 15

THE FUTURE VALUE IN 10 YEARS OF $500 EARNING 5% COMPOUNDED DAILY IS ________.

$628.32

$922.35

$824.33

$725.39

Question 16

AS A BOND'S DATE TO MATURITY ________, THE REACTION OF ITS PRICE TO CHANGES IN ITS YIELD _______.

I.    RISES; RISES
II.   RISES; FALLS
III. FALLS; FALLS
IV.   FALLS; RISES

IV ONLY

II AND IV

I AND III

II ONLY

Question 17

AS A BOND'S CREDIT RATING _______ ITS PRICE _______.

I.   RISES; RISES
II. RISES; FALLS
III. FALLS; FALLS
IV. FALLS; RISES

II AND IV

IV ONLY

I ONLY

I AND III

Question 18

A BOND WITH A COUPON RATE OF 6% HAS A PRICE OF $800. THIS MEANS THE BOND'S YIELD MUST BE _______

6%

LOWER THAN 6%

HIGHER THAN 6%

Question 19

CONSIDER THE CASH FLOWS IN THE FOLLOWING TABLE:

WHEN THE DISCOUNT RATE IS 10%, THE PRESENT VALUE OF ALL THE CASH FLOWS (INCLUDING THE MISSING CASH FLOW) IS $1,840.35. THE VALUE OF THE MISSING CASH FLOW MUST BE _______.

$592

$439

$558

$638

Question 22

GOOD NEWS! MICHAEL JORDAN'S HOME IN CHICAGO IS FOR SALE! SUPPOSE YOU AGREE TO PAY MR. JORDAN'S ASKING PRICE OF $20,0000,000 FOR THE HOME. YOUR BANK AGREES TO LEND YOU 80% OF THIS AMOUNT USING A FIXED-RATE, 30-YEAR MORTGAGE (WITH MONTHLY PAYMENTS) HAVING AN INTEREST RATE OF 7%.

YOUR MONTHLY INTEREST PAYMENTS ON THIS LOAN WILL BE _______.

$106,448.40

$133,060.50

$117,904.28

$102,893.51

Question 23

THE BONDS OF THE FIN 301 CORPORATION HAVE A COUPON RATE OF 8% (PAID SEMIANNUALLY), A FACE VALUE OF $1,000, A PRICE OF $877.15 AND MATURE IN 20 YEARS. THE YIELD ON THESE BONDS MUST BE _______.

8.51%

8.32%

7.95%

9.37%

Question 24

GOOD NEWS! MICHAEL JORDAN'S HOME IN CHICAGO IS FOR SALE! SUPPOSE YOU AGREE TO PAY MR. JORDAN'S ASKING PRICE OF $20,0000,000 FOR THE HOME. YOUR BANK AGREES TO LEND YOU 80% OF THIS AMOUNT USING A FIXED-RATE, 30-YEAR MORTGAGE HAVING AN INTEREST RATE OF 7%.

THE TOTAL AMOUNT OF INTEREST PAID ON THIS LOAN OVER ITS 30-YEAR LIFE WILL BE _________.

$10,394,193.81

$25,030,219.58

$8,394,193.35

$22,321,423.72

Question 25

THE SLOPE OF THE YIELD CURVE WILL ______ WHEN INFLATION IS EXPECTED TO _______.

I.    RISE; RISE
II.   RISE; FALL
III. FALL; FALL
IV.   FALL; RISE

II ONLY

I AND III

II AND IV

I ONLY

$2,981.67

$4,208.32

$2,859.18

$3,001.28

Explanation / Answer

13. 2981.67

14. 1555.97

15. 824.33

16. II AND IV

17. II AND IV

18. Higher than 6%

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