Question 1. The yield to maturity is:
- the rate that equates the price of the bond with the discounted cash flows.
- the expected rate to be earned if held to maturity.
- the rate that is used to determine the market price of the bond.
- equal to the current yield for bonds priced at par.
- All of the above.
Question 2. Can't Hold Me Back, Inc. is preparing to pay its first dividends. It is going to pay $1.00, $2.50, and $5.00 a share over the next three years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth to you per share if you demand a 7% rate of return?
- $7.20
- $14.48
- $18.88
- $21.78
- $25.06
Question 3. A supplier, who requires payment within ten days, is most concerned with which one of the following ratios when granting credit?
- current
- cash
- debt-equity
- quick
- total debt
Question 4. An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?
- accounts payable
- cash
- inventory
- accounts receivable
- fixed assets
Question 5. Thorton will receive an inheritance of $500,000 three years from now. Thorton's discount rate is 10% interest rate compounded semiannually. Which of the following values is closest to the amount that Thorton should accept today for the right to his inheritance?
- $ 373,108.
- $ 375,657.
- $ 665,500.
- $ 670,048.
- None of the above is within $10 of the correct answer.
Question 6. What is the present value of a payment of $21,000 three years from now if the effective annual interest rate is 4%?
- $17,951
- $18,480
- $18,658
- $18,669
- $19,218
Question 7. Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate, what is the difference in the present value of these two sets of payments?
- $32.88
- $40.00
- $99.01
- $108.00
- $112.50
Question 8. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn 6.5% on your money. Which option should you take and why?
- You should accept the payments because they are worth $56,451.91 today.
- You should accept the payments because they are worth $56,523.74 today.
- You should accept the payments because they are worth $56,737.08 today.
- You should accept the $50,000 because the payments are only worth $47,757.69 today.
- You should accept the $50,000 because the payments are only worth $47,808.17 today.
Question 9. You hope to buy your dream house six years from now. Today your dream house costs $189,900. You expect housing prices to rise by an average of 4.5% per year over the next six years. How much will your dream house cost by the time you are ready to buy it?
- $240,284.08
- $246,019.67
- $246,396.67
- $246,831.94
- $247,299.20
Question 10. Which one of the following statements concerning the annual percentage rate is correct?
- The annual percentage rate considers interest on interest.
- The rate of interest you actually pay on a loan is called the annual percentage rate.
- The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.
- When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.
- The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.