Unformatted text preview: : 3738 Level: Medium 37. Upon graduating from college this year you expect to earn $25,000 per year. If you get your MBA, in
one year you can expect to start at $35,000 per year. Over the year, inflation is expected to be 5%. In
today's dollars, how much additional (less) money will you make from getting your MBA (to the
nearest dollar) in your first year?
A) $2,462
B) $8,333
C) $8,750
D) $9,524
E) $10,000
Answer: B Page: 47 Level: Difficult
Response: (35,000 / 1.05)  25,000
38. Investment A pays 8% simple interest for 10 years. Investment B pays 7.75% interest for 10 years.
Both require an initial $10,000 investment. The future value of A minus the future value of B is equal to
_____ (to the nearest penny).
A) $2,500.00
B) $2,500.00
C) $1,643.32
D) $3,094.67
E) $3,094.67
Answer: E Page: 26 Level: Difficult
Response: [10000 + (800 v 10)] ± [10000 v 1.077510] 39. If a $10,000 par TBill has a 9.5% discount and a 180 day maturity, what is the price of the TBill?
14 Saunders, Financial Markets and Institutions, 2/e Chapter 1
A)
B)
C)
D)
E) Introduction
$9,050
$9,525
$9,532
$9,675
None of the above Answer: B Page: 3536 Level: Easy
Response: 9525=10,000 v [1(0.095*180/360)] 40. A 90 day TBill is selling for $9,825. The par is $10,000. The EAR on the TBill is
A) 7.00%
B) 7.22%
C) 7.29%
D) 7.42%
E) 7.54%
Answer: D Page: 3536 Level: Medium
Response: (10,000 / 9825)(365 / 90) ± 1 41. Suppose that $10 million face value commercial paper with a 270 day maturity is selling for $9.5
million. What is the EAR on the paper?
A) 5.26%
B) 7.11%
C) 7.32%
D) 9.45%
E) None of the above
Answer: E Page: 3637 Level: Medium
Response: {10 mill / 9.5 mill}365 / 270 ± 1 = 7.18% Saunders, Financial Markets and Institutions, 2/e 15 42. A $1 million jumbo CD is quoting a 6.25% interest rate on 180 day maturity CDs. How much money
could you withdraw in 180 days if you invest in the CD?
A) $1,000,000
B) $1,062,500
C) $1,031,250
D) $1,030,822
E) None of the above
Answer: C Page: 3536 Level: Medium
Response: 1 mill v [1 + (0.0625 v 180/360)] 43. An investor wants to be able to buy 4% more goods and services in the future in order to induce her to
invest today. During the investment period prices are expected to rise by 2%. Which statement(s)
below is/are true.
I. 4% is the desired real rate of interest
II. 6% is the approximate nominal rate of interest required
III. 2% is the expected inflation rate over the period
A) I only
B) II only
C) III only
D) I and II only
E) I, II and III are true
Answer: E Page: 47 Level: Difficult 44. Classify each of the following in terms of their effect on interest rates (increase or decrease):
I. Perceived risk of financial securities increases
II. Near term spending needs decrease
III. Future profitability of real investments increases
A) I increases, II increases, III increases
B) I increases, II decreases, III decreases
C) I decreases, II increases, III increases
D) I decreases, II decreases, III decreases
E) None of the above
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This note was uploaded on 09/23/2013 for the course FIN 308 taught by Professor Spivey during the Fall '08 term at Clemson.
 Fall '08
 Spivey
 Financial Markets

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