1. Five years ago, Jackson invested $18,900. In 3 years from today, he expects to have $28,700. If Jackson expects to earn the same annual rate of return after 3 years from today as the annual rate implied from the past and expected values given in the problem, then in how many years from today does he expect to have exactly $37,100?
A. A number equal to or greater than 3.80 but less than 5.20
B. A number equal to or greater than 5.20 but less than 6.50
C. A number equal to or greater than 6.50 but less than 7.80
D. A number equal to or greater than 7.80 but less than 9.10
E. A number less than 3.80 or an amount equal to or greater than 9.10
2. Lyric just borrowed $64,000 to buy a new opera house. The terms of the loan require her to make equal semi-annual payments for 7 years. Her first semi-annual payment is due in 6 months. If Lyric must pay $7,579.13 per half year, then what is the EAR of her loan?
A. 15.18% (plus or minus 0.03 percentage points)
B. 15.76% (plus or minus 0.03 percentage points)
C. 19.04% (plus or minus 0.03 percentage points)
D. 15.54% (plus or minus 0.03 percentage points)
E. None of the above is within 0.03 percentage points of the correct answer
3. What is the yield-to-maturity for a bond with a coupon rate of 16.80 percent, 17 years to maturity, and a face value of $1,000, if the price of the bond today is $1,259.59 and coupons are paid semi-annually with the next one due in 6 months?
A. A rate equal to or greater than 5.20% but less than 10.20%
B. A rate equal to or greater than 10.20% but less than 13.20%
C. A rate equal to or greater than 13.20% but less than 16.20%
D. A rate equal to or greater than 16.20% but less than 19.20%
E. A rate less than 5.20% or a rate equal to or greater than 19.20%
3. Jackson has one share of stock and one bond. The total value of the two securities is $1,500. The bond has a YTM of 9.4 percent, a coupon rate of 14.2 percent, and a face value of $1,000; pays semi- annual coupons with the next one expected in 6 months; and matures in 18 years. The stock pays annual dividends that are expected to grow by 5.4 percent per year forever. The next dividend is expected to be paid in one year. The stock has an expected return of 12.7 percent per year. What is the dividend in 1 year expected to be for the stock?
A. $6.36 (plus or minus $0.03)
B. $6.62 (plus or minus $0.03)
C. $11.06 (plus or minus $0.03)
D. $5.66 (plus or minus $0.03)
E. None of the above is within $0.03 of the correct answer