Question 1:
Assume that you wish to purchase a 25-year bond that has maturity value of $1,000 and makes semiannual interest payments of $45. If you require a 7 percent nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
Question 2:
Mark Corporation's budgeted monthly sales are $3,000. Forty percent of its customers pay in the first month and take the 2 percent discount. The remaining 60 percent pay in the month following the sale and don't receive discount. Mark's bad debts are very small and are excluded from this analysis. Purchases for next month's sales are constant each month at $1,500. Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month's cash budget with the information given. What is the average cash gain or (loss) during a typical month for Mark Corporation?
Question 3:
ABC Corporation is determining whether to support $125,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two-year note where the firm will receive $125,000 and repay $150,000 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, ABC can sell 9.5 percent coupon bonds with a 2-year maturity and $1,000 par value at a price of $950.00. How many percentage points lower is the interest rate on the less expensive debt instrument?
Question 4:
On its 1999 Balance Sheet, Sherman Books showed a balance of retained earnings equal to $510 million. On its 2000 Balance Sheet, the balance of retained earnings was also equal to $510 million. Which of the following statements is most correct? Show calculations.
a. The company must have had net income equal to zero in 2000
b. The company had a profit in 2000 but did not pay a dividend in 2000
c. The company's net income in 2000 was $200 million
d. If the company lost money in 2000, they must have paid a dividend
e. None of the statements above are correct