Fin 308 test 1 answer key

The following equation to find i pv 1 immn fv

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Unformatted text preview: uivalent yield B) The EAR C) The TOE D) The EYE E) The rate per compounding period Answer: A Page: 35-36 Level: Difficult 31. An annuity and an annuity due with the same number of payments have the same future value if r = 10%. Which one has the higher payment? A) They both must have the same payment since the future values are the same B) There is no way to tell which has the higher payment C) An annuity and an annuity due cannot have the same future value D) The annuity has the higher payment 12 Saunders, Financial Markets and Institutions, 2/e Chapter 1 Introduction E) The annuity due has the higher payment Answer: D Page: 32-34 Level: Difficult 32. You go to the Wall Street Journal and notice that yields on almost all corporate and Treasury bonds have decreased. The yield decreases may perhaps be explained by which one of the following: A) A decrease in U.S. inflationary expectations B) Newly expected decline in the value of the dollar C) An increase in current and expected future returns of real corporate investments D) Decreased Japanese purchases of U.S. Treasury Bills/Bonds E) Increases in the U.S. Government budget deficit Answer: A Page: 47-48 Level: Medium Use the following to answer questions 33-34: YIELD CURVE FOR ZERO COUPON BONDS RATED AA Maturity YTM Maturity YTM Maturity YTM 1 year 8.00% 7 year 9.15% 13 year 10.45% 2 year 8.11% 8 year 9.25% 14 year 10.65% 3 year 8.20% 9 year 9.35% 15 year 10.75% 4 year 8.50% 10 year 9.47% 16 year 10.95% 5 year 8.75% 11 year 9.52% 17 year 11.00% 6 year 8.85% 12 year 9.77% 18 year 11.25% There are no liquidity premiums. 33. To the nearest basis point what is the expected interest rate on a one year AA zero coupon bond purchased eight years from today? A) 9.47% B) 10.15% C) 9.41% D) 10.56% E) 0.12% Answer: B Page: 58-59 Level: Difficult Response: (1.09359 / 1.09258) -1 34. You just bought a 17 year maturity Xerox corporate bond rated AA with a 0% coupon. Find the expected rate of return (to the nearest basis point) on the bond if you expect to sell the bond in 6 years (watch out for rounding error). A) 11.00% B) 8.85% C) 12.39% D) 9.80% E) 9.92% Saunders, Financial Markets and Institutions, 2/e 13 Answer: B Page: 58-59 Level: Difficult 35. According to the liquidity premium theory of interest rates A) Long term spot rates are higher than the average of current and expected future short term rates. B) Investors prefer certain maturities and will not normally switch out of those maturities. C) Investors are indifferent between different maturities if the long term spot rates are equal to the average of current and expected future short term rates. D) The term structure must always be upward sloping. E) Long term spot rates are totally unrelated to expectations of future short term rates. Answer: A Page: 56 Level: Difficult 36. An increase in income tax rates A) Will decrease the savings rate B) Will decrease the supply of loanable funds C) Will increase interest rates D) All of the above Answer: D Page...
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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.

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