Principle of Finance
1
PART A
MULTIPLE CHOICE: ANSWER ALL QUESTIONS
Answer all questions. Write in your answer book the number of the question and ONE letter.
Question 1
Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond’s yield to maturity remains constant, then in 1 year the bond’s price will be:
a. Higher
b. Lower
c. Unchanged
d. Cannot answer based on given information
Question 2
The yield to maturity on a bond is:
a. Below the coupon rate when the bond sells at a discount, and above the coupon rate when the bond sells at a premium.
b. The discount rate that will set the present value of the payments equal to the bond price.
c. The current yield plus the average annual capital gain rate.
d. Based on the assumption that any payments received are reinvested at the coupon rate.
Question 3
The McDonald Group purchased a piece of property for $1.2 million. It paid a down-payment of
20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment? a. $7,440.01
b. $8,978.26
c. $9,036.25
d. $9,399.18
Question 4
One year ago, the Jenkins Family Fun Center deposited $3,600 in an investment account for the purpose of buying new equipment four years from today. Today, it is adding another $5,000 to this account. It plans on making a final deposit of $7,500 to the account next year. How much will be available when it is ready to buy the equipment, assuming it earns a 7% rate of return?
a. $19,430.84
b. $19,683.25
c. $20,194.54
d. $20,790.99
2
Question 5
What is the future value of investing $3,000 for 3/4 of a year at a continuously compounded rate of 12%?
a. $3,163
b. $3,263
c. $3,283
d. $3,287
Question 6
If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is
1.833, what is the present value of $1 received at the end of the 3 years?
a. $1.1905
b.
PART A
MULTIPLE CHOICE: ANSWER ALL QUESTIONS
Answer all questions. Write in your answer book the number of the question and ONE letter.
Question 1
Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond’s yield to maturity remains constant, then in 1 year the bond’s price will be:
a. Higher
b. Lower
c. Unchanged
d. Cannot answer based on given information
Question 2
The yield to maturity on a bond is:
a. Below the coupon rate when the bond sells at a discount, and above the coupon rate when the bond sells at a premium.
b. The discount rate that will set the present value of the payments equal to the bond price.
c. The current yield plus the average annual capital gain rate.
d. Based on the assumption that any payments received are reinvested at the coupon rate.
Question 3
The McDonald Group purchased a piece of property for $1.2 million. It paid a down-payment of
20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly. What is the amount of each mortgage payment? a. $7,440.01
b. $8,978.26
c. $9,036.25
d. $9,399.18
Question 4
One year ago, the Jenkins Family Fun Center deposited $3,600 in an investment account for the purpose of buying new equipment four years from today. Today, it is adding another $5,000 to this account. It plans on making a final deposit of $7,500 to the account next year. How much will be available when it is ready to buy the equipment, assuming it earns a 7% rate of return?
a. $19,430.84
b. $19,683.25
c. $20,194.54
d. $20,790.99
2
Question 5
What is the future value of investing $3,000 for 3/4 of a year at a continuously compounded rate of 12%?
a. $3,163
b. $3,263
c. $3,283
d. $3,287
Question 6
If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is
1.833, what is the present value of $1 received at the end of the 3 years?
a. $1.1905
b.