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Question;1. If theinterest is compounded quarterly with 8% APR, which of the following statements is CORRECT?;a. The periodic rate of;interest is 2% and the effective rate;of interest is 4%.;b. The periodic rate of;interest is 8% and the effective rate;of interest is greater than 8%.;c. The periodic rate of;interest is 4% and the effective rate;of interest is less than 8%.;d. The periodic rate of;interest is 2% and the effective rate;of interest is greater than 8%.;e. The periodic rate of;interest is 8% and the effective rate;of interest is also 8%.;2. What is the coefficient of;variation for security a?;Probability;Ra(State=?);Rb(State=?);Boom;35%;0.30;0.06;Average;40%;0.10;0.06;Recession;25%;--0.15;-0.05;a.;1.00;b.;1.25;c.;1.36;d.;1.73;e.;1.90;3. You plan to save \$6,400 per year, beginning immediately. You will make 4 deposits in an account that;pays 5.7% interest. How much will you have 4 years from today?;a. \$22,980.31;b. \$22,685.69;c. \$26,221.12;d. \$29,461.93;e. \$31,524.26;4. Which;of the following investments would have the highest future value at the;end of 10 years? Assume that the;effective annual rate for all investments is the same and is greater than zero.;a. Investment A pays \$250 at the beginning;of every year for the next 10 years (a total of 10 payments).;b. Investment B pays \$125 at the end of;every 6-month period for the next 10 years (a total of 20 payments).;c. Investment C pays \$125 at the beginning;of every 6-month period for the next 10 years (a total of 20 payments).;d. Investment D pays \$2,500 at the end;of 10 years (just one payment).;e. Investment E pays \$250 at the end of;every year for the next 10 years (a total of 10 payments).;-250;5. Your;uncle has \$300,000 invested at 7.5%, and he now wants to retire. He wants to withdraw \$35,000 at the end;of each year, starting at the end of this year.;He also wants to have \$25,000 left to give you when he ceases to;withdraw funds from the account. For how;many years can he make the \$35,000 withdrawals and still have \$25,000 left in;the end?;a. 13.48;b. 14.96;c. 15.71;d. 16.49;e. 17.32;6. Suppose;you just won the state lottery, and you have a choice between receiving;\$2,550,000 today or a 20-year annuity of \$250,000, with the first payment;coming one year from today. What rate of;return is built into the annuity?;Disregard taxes.;a. 7.12%;b. 7.49%;c. 7.87%;d. 8.26%;e. 8.67%;7. Which;indenture provision may affect the price of the bond differently?;a. convertibility;b. sinking fund;c. call;d. restrictions on;dividends;e. collateral;8. Suppose;1-year Treasury bonds yield 4.00% while 2-year T-bonds yield 4.80%. Assuming the pure expectations theory is;correct, what is the yield on a 1-year T-bond expected to be one year from now?;a. 5.61%;b. 5.72%;c. 6.22%;d. 5.44%;e. 6.11%;9. Which;of the following factors would be most likely to lead to an increase in nominal;interest rates?;a. Households reduce their consumption and;increase their savings.;b. A new technology like the Internet has just;been introduced, and it increases investment opportunities.;c. There is a decrease in expected inflation.;d. The economy falls into a recession.;e. The Federal Reserve decides to try to;stimulate the economy.;10. You;are comparing saving;\$100 every month for a year vis-?-vis \$1,200 at the beginning of the year. How much extra will you have at the end of;the year by saving \$ 1,200 at the beginning of the year instead of saving \$100;each month at the end of each month. Use 6% interest rate.;a. \$35.51;b. \$38.44;c. \$60.90;d. \$63.90;e. \$76.71;11. The real risk-free rate is 3.05%, inflation is expected to;be 2.75% this year, and the maturity risk premium is zero. IBM stock has a risk premium of 0.9%. What is;the equilibrium rate of return on a 1-year Treasury bond?;a. 5.51%;b. 5.80%;c. 6.09%;d. 6.39%;e. 6.71%;12. Suppose the real risk-free rate is 3.25%, the average;future inflation rate is 4.35%, and a maturity risk premium of 0.07% per year;to maturity applies to both corporate and T-bonds, i.e., MRP = 0.07%(t), where;t is the years to maturity. Suppose also;that a liquidity premium of 0.50% and a default risk premium of 0.90% apply to;A-rated corporate bonds but not to T-bonds.;How much higher would the rate of return be on a 10-year A-rated;corporate bond than on a 5-year Treasury bond?;a. 1.75%;b. 1.84%;c. 1.93%;d. 2.03%;e. 2.13%

Paper#44980 | Written in 18-Jul-2015

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