EEQuiz2 - VERSION 1 FAMILY NAME / INITIAL FAMILY INI SOLUTI...

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VERSION 1 1 FAMILY NAME / IN FAMILY NAME / INITIAL TIAL S O L U T I O N S STUDENT ID # STUDENT ID # MIME 310 ENGINEERING ECONOMY ENGINEERING ECONOMY – QUIZ #2 QUIZ #2 May 14, 2007 – 8:30 to 9:15 MULTIPLE-CHOICE QUESTIONS Circle the correct answer on this test paper and record it on the computer answer sheet. PART 1. Multiple-choice Statements – Circle the correct answer on this paper and record it on the computer answer sheet. Each question is worth 1 points for a total of 4. Note : There are no penalties for incorrect answers. 1. Which of the following statement(s) is/are correct? A) For any positive discount rate, the present value of a 5-year annuity due will exceed the present value of a 5-year ordinary annuity. B) If the nominal rate is 10 percent, then the effective rate can never be less than 10 percent. C) If there is annual compounding, then the effective, periodic and nominal rates of interest are the same. D) All of the statements above are correct. E) Statements A and C are correct. 2. You are considering two Treasury bonds. Bond A has a 9 percent annual coupon and Bond B has a 6 percent annual coupon, both paid once per year. Both bonds have a yield to maturity of 7 percent. Assuming that the yield to maturity is expected to remain at 7 percent, which one of the following statements is correct? A) The price of both bonds will increase by 7 percent per year. B) The price of both bonds will increase over time, but the price of Bond A will increase by a larger amount. C) The price of both bonds will remain unchanged. D) The price of Bond A will decrease over time and the price of Bond B will increase over time. E) The price of Bond B will decrease over time and the price of Bond A will increase over time. Bond A sells at a premium because its coupon rate is above the yield to maturity. Therefore, Bond B sells at a discount. The market price of both bonds will tend towards their face value at maturity.
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VERSION 1 2 3. Assume a fruit-packing plant that shuts down for three months each year. During this pe- riod, its: A) total variable costs are positive. B) total fixed costs are positive. C) total production costs are zero. D) total fixed costs are zero. E) average fixed cost is zero 4. The average total cost is minimised when average total cost equals: A) average variable cost. B) minimum average variable cost. C) minimum marginal cost. D) marginal cost. E) average fixed cost. PART 2. Short multiple-choice Problems – Circle the correct answer on this paper and record it on the computer answer sheet. Each question is worth 2 points for a total of 18. Note : There are no penalties for incorrect answers. 5. Your subscription to Jogger’s World Monthly is about to run out and you have the choice of renewing it by paying the regular annual rate of $10 or getting a lifetime subscription to the magazine by paying $100. Your time value of money is 7 percent. Payments for the regu- lar subscription are made at the beginning of each year.
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EEQuiz2 - VERSION 1 FAMILY NAME / INITIAL FAMILY INI SOLUTI...

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