REVIEWSHEETFORTHEMIDTERM;BookChapters123567;MultiplechoicequestionsfromtheconceptsintheslidesforLecture1,Lecture2;Lecture3andLecture4(30pts);(Igooverthemostimportantconceptsduringthereviewsessionintheclass);Problems(70pts)similartotheassignmentquestions;PV/FVquestions(findingPV,FV,NorI/Y);Annuityquestions(PMT,ordinaryannuity,growingannuity,perpetuity;growingperpetuity);Findingeffectiverates(EAR);Bondvaluation(Bondprice,YTM,rateofreturn);SuggestedquestionsfromChapter7(textbookendofchapterquestionsonpg229;230);678917;MoreReviewProblems;1) Redesigned Computers has 6.5 percent coupon bonds outstanding with a;current market price of $832. The yield to maturity is 16.28 percent and the face;value is $1,000. Interest is paid semiannually. How many years is it until these;bonds mature?;Prof.Col;2) A corporate bond is quoted at a price of 103.16 and carries a 5.20 percent;coupon. The bond pays interest semiannually. What is the current yield on these;bonds?;Current yield = (0.052 $1,000)/(1.0316 $1,000) = 5.04 percent;3) The yield to maturity on a bond is currently 8.46 percent. The real rate of;return is 3.22 percent. What is the rate of inflation?;4)Soo Lee Imports issued 17-year bonds 2 years ago at a coupon rate of 10.3;percent. The bonds make semiannual payments. These bonds currently sell for;102 percent of par value. What is the yield-to-maturity?;5)Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-tomaturity of 9.2 percent, and a current price of $802.30. The bonds make;semiannual payments. What is the coupon rate?;Coupon rate = ($32.81 2)/$1,000 = 6.56 percent;Prof.Col;6) Bond T is a 10 percent coupon bond, has 11 years to maturity, makes;semiannual payments, and has a yield-to-maturity of 7 percent. If interest rates;suddenly rise by 2 percent, what will the percentage change in the price of Bond;T be?;Percentage change in price = ($1,068.92 - $1,227.51)/$1,227.51 = -12.92;percent;Prof.Col;7) You borrow $165,000 to buy a house. The mortgage rate is 4.5 percent and;the loan period is 30 years. Payments are made monthly. If you pay the;mortgage according to the loan agreement, how much total interest will you pay?;8)Nadine is retiring at age 62 and expects to live to age 85. On the day she;retires, she has $402,000 in her retirement savings account. She is somewhat;conservative with her money and expects to earn 6 percent during her retirement;years. How much can she withdraw from her retirement savings each month if;she plans to spend her last penny on the morning of her death?;9)Today, you borrowed $6,200 on your credit card to purchase some furniture.;The interest rate is 14.9 percent, compounded monthly. How long will it take you;to pay off this debt assuming that you do not charge anything else and make;regular monthly payments of $120?;Prof.Col;83.14 months/12 = 6.93 years;10) The Wine Press is considering a project which has an initial cash;requirement of $187,400. The project will yield cash flows of $2,832 monthly for;84 months. What is the rate of return on this project?;11)You just settled an insurance claim. The settlement calls for increasing;payments over a 10-year period. The first payment will be paid one year from;now in the amount of $10,000. The following payments will increase by 4.5;percent annually. What is the value of this settlement to you today if you can earn;8 percent on your investments?;12)You are considering changing jobs. Your goal is to work for three years and;then return to school full-time in pursuit of an advanced degree. A potential;employer just offered you an annual salary of $41,000, $43,000, and $46,000 a;year for the next three years, respectively. All salary payments are made as lump;sum payments at the end of each year. The offer also includes a starting bonus;of $3,000 payable immediately. What is this offer worth to you today at a discount;rate of 6.75 percent?;Prof.Col;13)You would like to establish a trust fund that will provide $120,000 a year;forever for your heirs. The trust fund is going to be invested very conservatively;so the expected rate of return is only 5.75 percent. How much money must you;deposit today to fund this gift for your heirs?;14)Miley expects to receive the following payments: Year 1 = $50,000, Year 2 =;$28,000, Year 3 = $12,000. All of this money will be saved for her retirement. If;she can earn an average of 10.5 percent on her investments, how much will she;have in her account 25 years after making her first deposit?;Theansweris$1,033,545;15)Your credit card company quotes you a rate of 17.9 percent. Interest is billed;monthly. What is the actual rate of interest you are paying?
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