At an interest rate of 5%, what comes closest to the amount of time it takes for

Question

At an interest rate of 5%, what comes closest to the amount of time it takes for a deposit of $7,500 to reach $15,000?

10.24 years

11.90 years

23.45 years

14.21 years

17.67 years

Which constituent of the corporation has a contract that offers a residual claim?

The creditors (also known as bondholders)

The government

The customer

The managers

The shareholders (also known as stockholders)

If $400 grows to $4,000 in 9 years, approximately what interest rate is earned?

29%

33%

39%

23%

26%

As an employee in the Lottery Commission, your job is to design a new prize. Your idea is to create two grand prize choices: (1) receiving $50,000 at the end of each year beginning in one year for 20 consecutive years, or (2) receiving $500,000 today followed by a one-time payment at the end of 20 years. Using an interest rate of 5%, which of the following comes closest to the amount prize (2) needs to pay at the end of year 20 in order that both prizes to have the same present value?

$ 235,712

$ 326,649

$ 114,932

$ 440,463

$ 393,342

In the story of New England Wire and Cable, the company was in an unusual situation of being worth more dead than alive. What economic principle was violated when Larry Garfield tried to get control of the firm, break it up, sell the assets, and make a profit?

The law of one price

Non-positive marginal utility of wealth

Diminishing marginal utility of wealth

Diminishing marginal return

Externalities

You are trying to price two bonds that have the same maturity and par value but different coupon rates. Both bonds mature in 8 years and at maturity both bonds return the par value of $1,000. One bond has a coupon rate of 3% and a yield to maturity of 3%. The other bond has a coupon rate of 5% and a yield to maturity of 5%. What is the absolute value of the difference between the prices of these two bonds?

$ 67.33

$ 62.10

$ 0

$ 119.43

$ 140.39

What amount comes closest to the future value, at the end of year 20, of a 15 year annuity of $550 that makes its first payment at the end of year 6? Use an interest rate of 5%.

$ 12,802

$ 10,229

$ 13,821

$ 11,868

$ 11,031

a.

10.24 years

b.

11.90 years

c.

23.45 years

d.

14.21 years

e.

17.67 years

Explanation / Answer

Solution.

1.

d.14.21 years

3.

b.33%

6.

c.$ 0

7. Calculation of Future value

b.$ 10,229

Year Cash flow Rate of Interest 5% Present value 0 $          7,500.00 1 $        7,500.00 1 $          7,500.00 5% $            375.00 2 $          7,875.00 5% $            393.75 3 $          8,268.75 5% $            413.44 4 $          8,682.19 5% $            434.11 5 $          9,116.30 5% $            455.81 6 $          9,572.11 5% $            478.61 7 $        10,050.72 5% $            502.54 8 $        10,553.25 5% $            527.66 9 $        11,080.92 5% $            554.05 10 $        11,634.96 5% $            581.75 11 $        12,216.71 5% $            610.84 12 $        12,827.55 5% $            641.38 13 $        13,468.92 5% $            673.45 14 $        14,142.37 5% $            707.12 15 $        14,849.49 5% $            742.47 16 $        15,591.96 5% $            779.60

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