1. A bond with a face value of $1,000 that sells for more than $1,000 in the
market is called a:
A) Par bond.
B) Discount bond.
C) Premium bond.
D) Zero coupon bond.
E) Floating rate bond.
Answer: C
2. The long-term bonds issued by the United States gover
1. You are considering an investment which has the following cash flows. If
you require a 5 year payback period, should you take the investment?
Y ear
C a s h F lo w
0
$ 3 0 ,0 0 0
1
$ 1 0 ,0 0 0
2
$ 5 ,0 0 0
3
$ 5 ,0 0 0
4
$ 7 ,5 0 0
5
$ 1 0 ,0 0 0
6
$
1. The difference between the market value of an investment and its cost is
the:
A) Net present value.
B) Internal rate of return.
C) Payback period.
D) Profitability index.
E) Discounted payback period.
Answer: A
2. The net present value (NPV) rule can b
1. What would you pay for a bond that pays an annual coupon of $45, has a
face value of $1,000, matures in 11 years, and has a yield to maturity of
10%?
A) $142.22
B) $225.34
C) $300.13
D) $410.14
E) $421.33
Answer: A
Response: price = $45 [(1 - 1/1.1
11)
1.For a project with an initial investment of $3,000 and cash inflows of $2,000
each year for 1 years, calculate NPV given a required return of 13%.
A) $341
B) $213
C) $
0
D) $144
E) $552
Answer: C
1
Response: NPV = -$3,000 + 2,000 [(1 - 1/1.13 ) / .13] =
1. If investors are uncertain that they will be able to sell a corporate bond
quickly, the investors will demand a higher yield in the form of a(n)
_.
A) inflation premium
B) liquidity risk premium
C) interest rate risk premium
D) default risk premium
E)
FV Annuity Due Example
How much will you pay 10 years from today for an asset that provides
a cash flow of $632 a year for the next 10 years if i = 10% if all CFs are at
the beginning of each year ?
Solving for FV(Annuity Due)
PV Annuity Due Example
Step
1. The market in which previously issued securities are traded among
investors is the:
A) Dealer market.
B) Auction market.
C) Over-the-counter (OTC) market.
D) Secondary market.
E) Primary market.
Answer: D
2. Common stock valuation requires, among other
1. Wonderland just issued a bond with a $1,000 face and a coupon rate of
3%. The bond has a life of 20 years, annual coupons, and a yield to
maturity is 2.5%, what will the bond sell for?
A) $ 425
B) $1,020
C) $1,051
D) $1,032
E) $1,112
Answer: C
1000 FV,
1. The internal rate of return (IRR) rule can be best stated as:
A) An investment is acceptable if its IRR is exactly equal to its First
present value (ITG).
B) An investment is acceptable if its IRR is exactly equal to zero.
C) An investment is acceptabl