Problem 1. You will require $700 in 5 years. If you earn 5 percent interest on your funds, how much will you need to invest today to reach your goal?
a. $575.34
b. $548.47
c. $545.44
d. $573.35
Problem 2. You deposit $1,000 in your bank account. If the bank pays 4 percent compounded interest, how much will you accumulate in your account after 10 years?
a. $1,400
b. $1,500
c. $1,480
d. $1,343
Problem 3. A General Motors bond carries a coupon rate of 8 percent, has 9 years until maturity, and sells at a yield to maturity of 7 percent. At what price does the bond sell for?
a. $1,065
b. $1,108
c. $1,080
d. $1,040
Problem 4. Given two projects what are the decision models that you can use to make a decision as to which project you should accept? Which is the better?
Problem 5. Why do companies pay dividends? In what ways can dividends be paid? How do companies decide on dividend payments?
Problem 6. In what ways is preferred stock like long-term debt? In what ways is it like common stock?
Problem 7. When securities are issued (IPO) what is the role of the underwriter?
Problem 8. Presented are two mutually exclusive projects under consideration by the BUILDERS-R-US Company:
Year Project A Project B
0 -30,000 -50,000
1 10,000 15,000
2 10,000 15,000
3 10,000 15,000
4 10,000 15,000
The cost of capital is 10%.
A) Payback period
B) NPV
C) IRR