Question 1. A 20-year bond pays 12% on a face value of $1,000. If similar bonds are currently yielding 9%, What is the present value of the bond? (Use annual analysis, based on 20 yrs-- and a decrease in the inflation premium as shown.)
- over $1,000
- under $1,000
- over $1,200
- $1,000
Question 2. If the inflation premium for a bond goes up, the price of the bond
- stays the same.
- goes down.
- goes up.
- cannot be determined.
Question 3. You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?
- Present value of an annuity of $1
- Future value of an annuity
- Present value of $1
- Future value of $1
Question 4. Which of the following is not one of the components that makes up the required rate of return on a bond?
- risk premium
- real rate of return
- inflation premium
- maturity payment
Question 5. Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today's dollars?
- Present value of an annuity
- Present value of a single amount
- Future value of an annuity
- Future value of a single amount
Question 6. Mr. Nailor invests $5,000 in a certificate of deposit at his local bank. He receives annual interest of 8% for 7 years. How much interest will his investment earn during this time period? (You will use one of the Appendix tables, in the back of your text, to help calculate the answer)
- $2,915
- $3,570
- $6,254
- $8,570
Question 7. To save for her newborn son's college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value? (You will use one of the Appendix tables, in the back of your text, to help calculate the answer)
- $7,690.
- $34,931.
- $63,440.
- $55,750.
Question 8. A bond which has a yield to maturity greater than its coupon interest rate will sell for a price
- below par.
- at par.
- above par.
- what is equal to the face value of the bond plus the value of all interest payments.
Question 9. The market allocates capital to companies based on all of the following; EXCEPT
- risk.
- efficiency.
- expected returns.
- number of employees.
Question 10. If you were to put $1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account?
- Present value of $1
- Future value of $1
- Present value of an annuity of $1
- Future value of an annuity of $1