3101 Practice Exam Ch 5-8 with some answers

# 3101 Practice Exam Ch 5-8 with some answers - Practice Exam...

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Practice Exam - Finance 3101 1) A company selling a bond is ________ money. A) borrowing B) lending C) taking D) reinvesting 2) Nominal interest rates are the sum of two major components. These components are ________. A) the real interest rate and expected inflation. B) the risk-free rate and expected inflation. C) the real interest rate and default premium. D) the real interest rate and the t-bill rate. 3) Suppose you postpone consumption and invest at 9% when inflation is 3%. What is the real rate of your reward for saving? (use the full Fischer Effect equation) A) 3.00% B) 5.21% C) 5.83% D) 6.22% 4) The real rate is 2.50% and inflation is 3.25%. Roughly speaking, what is the nominal rate? A) 5.75% B) 5.25% C) 3.25% D) 1.25% 5) Josephine is seeking to expand her rare stamp collection. Each year, rare stamps increase in price at a three percent rate. She believes that if she invests her money for one year, she should be able to buy 16 stamps for what 15 stamps would cost today. What is her real interest rate (or reward for waiting)? A) Her real interest rate is about 4.23%. B) Her real interest rate is about 5.33%. C) Her real interest rate is about 6.33%. D) Her real interest rate is about 6.67%.

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6) The ________ compensates the investor for the additional risk that the loan will not be repaid in full. A) default premium B) inflation premium C) real rate D) interest rate 7) Five years ago, Thompson Tarps Inc. issued twenty-five-year 10% annual coupon bonds with a \$1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Thompson bonds is now 12%. Given this information, what is the price today for a Thompson Tarps bond? A) \$843.14 B) \$850.61 C) \$1,181.54 D) \$1,170.27 8) The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the ________. A) yield to maturity. B) coupon rate. C) par rate. D) current yield. 9) Endicott Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of \$1,000. If the annual coupon rate is 14% and the current yield to maturity is 8%, what is the firm's current price per bond? A) \$578.82
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## 3101 Practice Exam Ch 5-8 with some answers - Practice Exam...

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