Unformatted text preview: FI311 – Section 3 – Sample Exam 2 This list of questions is representative of the style and type of problems that you will find in Exam 2. The topics and the problems in the exam may be different from the content of the Exam. Please refer to the list of topics provided by the instructor for your preparation. It is recommended that you try to solve these problems in 80 minutes, which is the time you will be allowed during the exam. You should try to solve these problems using the BAII plus calculator and not excel. If your result is not listed in the options provided, choose the answer that approximates your calculation most closely. Answers and solutions will be posted in a separate document. 1. A premium bond sells ________ par and its coupon rate is _______ than the yield to maturity a. At less than; higher b. At less than; lower c. At more than; higher d. At more than; lower e. At; equal 2. Which of the following elements are included in the bond’s indenture, if applicable? i. Par value ii. Yield to maturity iii. Protective covenant a. I only b. I and II only c. I and III only d. II and III only e. All of them 3. The price of a stock is best calculated as: a. The present value of all future dividends b. The sum of all future cash flows c. The ratio of the difference between P0 and P1 and the value of P0 d. The present value of all future cash flows e. The present value of the capital gain projected for the stock 4. A 15 year bond currently sells at par. It offers semi‐annual payments and the payment is $36. What is the yield to maturity of this bond? a. 3.6% b. 5.0% c. 7.2% d. 8.3% e. It cannot be determined FI311 – Section 3 – Sample Exam 2 Use the following information for questions 5 and 6: You want to buy a new 3D TV in 2 years and you forecast you will need $2000. You currently have saved up $300 and your bank account earns you 1% per month. 5. How much do you need to add to your bank account every month in order to have enough money to buy your new TV in 2 years? a. $21.61 b. $60.03 c. $69.90 d. $74.15 e. $70.83 6. If your aunt gives you another $500 for your birthday today to use towards your TV, how many months will you need in total (starting from now) to buy the TV if you keep saving the monthly amount calculated in the previous question? a. 53.29 months b. 35.20 months c. 31.98 months d. 11.56 months e. 16.33 months 7. The following information appeared this morning in the Wall Street Journal for corporate bonds. This bond pays coupons semiannually in January and June of each year. What is the Yield to Maturity for the bond? Format to 4 decimals Coupon Maturity Last price 2.750 June 2021 92.50 a. 6.5700% b. 3.6520% c. 3.6148% d. 4.8892% e. 1.8466% 8. The following information appeared on the Wall Street Journal this morning for a treasury bond with semi annual payments (April and October). What is the bid‐
ask spread? Coupon Maturity Bid Ask 3.335 October 2018 97:18 98:06 a. $6.25 b. $8.80 c. $5.75 d. $0.88 e. it cannot be determined FI311 – Section 3 – Sample Exam 2 9. Using the rule of 72, what annual rate of return do you need to earn if you want to get from your current $2000 to 16,000 in 8 years? a. 18% b. 36% c. 9% d. 27% e. it cannot be determined with the given information 10. Your credit card has a balance of $2500. The credit card issuer applies a
monthly rate of 1.5%. How long will it take you to pay off your balance if you don’t incur any additional expenses and you pay $50 per month? a. 93.11 months b. 51.66 months c. 13.90 months d. 37.50 months e. 50.00 months 11. Best Practice Consulting has just paid a dividend of $1.80. They expect to grow at a rate of 5% indefinitely. What is the price of this stock if the expected rate of return is 10%? a. $18.90 b. $12.00 c. $18.00 d. $36.00 e. $37.80 12. A 15 years bond pays $35 twice per year and is currently traded at par. If it has been 60 days since the last coupon was paid and the coupon period is 182 days, what is the dirty price for this bond? a. $1,000.00 b. $1,046.92 c. $1,023.08 d. $1,011.54 e. $988.46 13. Beta Risk Management expects to grow at 10% for the next 3 years and then at 7% indefinitely. If their last dividend was paid yesterday in the amount of $1.50 per share, and the expected return on the market is 14%, what is the price of the stock? a. $28.92 b. $24.79 c. $25.34 d. $26.80 e. $30.52 FI311 – Section 3 – Sample Exam 2 14. If the price of a bond that currently sells at par increases, what happens to its coupon rate? a. It decreases b. It increases c. It stays the same 15. The current yield of Firm A is 5.2%. If the current price of the stock is $45, and the expected growth is 8%, what is the expected rate of return for this stock? a. 5.2% b. 8% c. 1.2% d. 13.6% e. 9.62% 16. Sigma manufacturing is experiencing some marketing difficulties. Their last dividend paid was $2.00 per share and they project a $1.80 for next year. If the expected return is 12% what is the price of the stock? a. $90.05 b. $9.09 c. $8.18 d. $100.00 e. $15.2 17. A zero coupon bond sells at $450. If the bond matures in 7 years, what is the yield to maturity? a. 12.08% b. 5.86% c. 24.16% d. 7.00% e. it cannot be determined since there is no periodic payment 18. Which of the following statements are correct? i. A bond with a protective covenant sells at a higher price than one without, all else equal ii. A bond with 15 years to maturity sells at a higher price than one with 30 years to maturity, all else equal iii. A bond with a call provision sells at a higher price than a bond without, all else equal a. I only b. II only c. III only d. I and II e. II and III FI311 – Section 3 – Sample Exam 2 19. You are planning your retirement. You currently have saved $15,000 in a bank account that earns you 5% interest compounded monthly. How much do you need to save each month to have $1,000,000 in 40 years? a. $750.00 b. $227,781.65 c. $22,618.54 d. $582.97 e. $236,424.01 20. You want to open a new savings account and you are considering the following options. Which bank is actually offering the best deal? a. Bank A offers a rate of 4.6% compounded annually b. Bank B offers a rate of 4.5% compounded quarterly c. Bank C offers a rate of 4.4% compounded continuously 21. You borrowed $50,000 from your grandmother 10 years ago. She agreed that you would pay her back a fixed amount per month for 15 years. How much of the principal do you still need to pay today if the annual interest rate is 3%? a. $19,216.25 b. $30,783.75 c. $33,333.33 d. $16,666.66 e. $8,600.00 22. Your little sister owes you $150 and will pay you back with her allowance of $10 per week. If you agreed to charge her zero interest, how long will it take her to pay you back? a. 15 weeks b. 12 weeks c. 10 weeks d. 8 weeks e. 20 weeks 23. Today you won the lottery. Your winnings will be split into 12 monthly payments of $2,000 starting from today. If the rate of return you can get at your bank is 3%, what is the present value of your lottery winnings? a. $38,968.98 b. $23,673.54 c. $23,614.51 d. $20,505.25 e. $29,507.03 FI311 – Section 3 – Sample Exam 2 24. Pear Computers doesn’t pay any dividends to its investors. However they currently trade at $250 per share and are expected to grow at 15% over the next few years. What is the expected rate of return for Pear Computers? a. 5% b. 10% c. 15% d. 20% e. it cannot be determined ...
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 Fall '06
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