1. Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer. The loan requires five equal annual (end of year) payments. If the loan provides the bank with a 12 percent return, what will be your annual payments?
a) $5,547.85
b) $3,148.12
c) $6,000.00
d) $1,666.67
2. Each year a company is required to place money into a bank account to retire its bond's principal at maturity. If the bond's principal is $10 million, and bank interest is estimated at 8%, how much are the annual payments if they are to be made over the last 20 years of the bond's life?
a) $101,853
b) $218,522
c) $462,950
d) $425,387
3. Because of a lucky breakthrough, Philadelphia Pharmaceutical’s current dividend per share of $2.00 is expected to grow at a very high 32 percent per year for the next three years and then to grow at a more normal 6 percent per year. What is the value of a Philadelphia share if the investors’ expected return is 20 percent?
4. Common stockholders:
a) have a residual claim on both income and assets
b) are last in line in the event of bankruptcy
c) have a higher claim on assets than preferred stockholders
d) both a & b
e) all of the above
5. If a bond is selling at par value, which of the following would be the same as its coupon rate:
a) Current Yield
b) Yield to Maturity
c) Market Interest Rate
d) Both b & c
e) All of the above