1.Present Value of a Perpetuity- A perpetuity pays $110 per year and interest rates are 6.6 percent. How much would its value change if interest rates increased to 9.1 percent?
A.$275.00 decrease
B.$457.88 increase
C.$457.88 decrease
D.$275.00 increase
2. Phontaine realizes that she has charged too much on her credit card and has racked up $5,800 in debt. If he can pay $250 each month and the card charges 17 percent APR (compounded monthly), how long will it take her to pay off the debt? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
3. TIPS Interest and Par Value- A 3.00 percent TIPS has an original reference CPI of 171.6. If the current CPI is 206.9, what is the current interest payment and par value of the TIPS? (Round your answer to 2 decimal places.)
A. Top of Form
A. $1,205.71, $5.71, respectively
B. $1,000, $5.71, respectively
C. $1,205.71, $18.09, respectively
D. $1,000, $18.09, respectively
4. Determinants of Interest Rate for Individual Securities- You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 3.60 percent. Your broker has determined the following information about economic activity and the corporation bonds:
Real interest rate = 3.30%
Default risk premium = 3.35%
Liquidity risk premium = 1.50%
Maturity risk premium = 3.10%
What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?
A. .30% and 11.55%, respectively
B. .30% and 2.31%, respectively
C. 3.60% and 14.85%, respectively
D. .30% and 11.25%, respectively
5. Unbiased Expectations- Theory One-year Treasury bills currently earn 6.45 percent. You expect that one year from now, one-year Treasury bill rates will increase to 6.70 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?
A. 6.575%
B. 6.700%
C. 6.450%
D. 13.150%
6. Dividend Initiation and Stock Value- A firm does not pay a dividend. It is expected to pay its first dividend of $0.35 per share in 2 years. This dividend will grow at 10 percent indefinitely. Using a 12 percent discount rate, compute the current value of this stock.
A. $15.63
B. $17.50
C. $15.98
D. $17.85
7. Selling Stock with Commissions At your full-service brokerage firm, it costs $134 per stock trade. How much money do you receive after selling 100 shares of Ralph Lauren (RL), which trades at $85.27?
A. $8,393
B. $7,991
C. $8,661
D. $8,527
8. A 8.5 percent coupon bond with 13 years left to maturity is priced to offer a 6.75 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.6 percent.
What would be the total return of the bond in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Total return $____________
What would be the total return of the bond in percentage? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Total Return __________%