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1.    An executive of a large company will receive 100,000 per year (at the end of the year) for 7 years. The

annual interest earned on the investment is 4% . What is the present value of the executive's investment?

a.     $600,205

b.    $700,000

c.     $ 28,000

d.    $852,750

 

 

2.    A woman wants to forever endow her heir with 50,000 per year. If the woman's trust will earn 6%, how much needs to be put into the trust with these annual funds?

a.     833,333

b.    500,000

c.     555,556

d.    466,666

 

 

 

 

 

 

 

3.     What is the yield to maturity (YTM) of a bond?

a.     The stated interest rate on the bond

b.    The number of years to maturity

c.     The rate the bond will earn from the purchase date to maturity

d.    A floating rate that changes due to market conditions

 

 

 

4.     The market rate of return is 6%. The face value of the bond is $1,000, the coupon rate is 4% and the bond matures in 7 years. What is the price?

a.     $  888

b.    $1,120

c.     $  924

d.    $1,012

 

 

 

 

 

 

 

 

 

5.     A company issues bonds at a market price of $1,025, The face value is 1,000, the bond matures in 4 years and the coupon rate is 7%. What is the YTM of the bonds

a.     10.67

b.    3.25

c.     6.00

d.    6.27

 

 

 

 

 

 

 

 

6.     If a bond pays interest of $60 per year and has YTM of 6%, what does it say about the value of the bond?

a.     Greater than the market price

b.    Less than the face value

c.     Equal to the face value

d.    Less than the market price

 

 

 

 

 

 

7.    If the current coupon rate on a bond is 4%, and the bond is selling at a 7% discount, what assumption can we make about the YTM?

a.     Equal to 4%

b.    Equal to 3%

c.     Less than 4%

d.    More than 4%

 

 

 

 

 

 

 

8.    How is an investment, with the maturity of less than one year carried on the balance sheet?

a.     It is a current liability

b.    It is owner's equity

c.     It is a current asset

d.    It is a long term liability

 

9.    When is a company that has strong operating revenues and competent management a good investment?

a.     When the current stock price is stable in the market

b.    When the intrinsic value of the price per share is higher than the current stock price

c.     When the market stock price is overvalued relative to the intrinsic value

d.    When the stock yield is greater than the bond yield

 

10.  A company recently paid a $3 dividend per share of stock, which is expected to grow 5% annually. The investor expects a return of 11%. What is the highest price the investor should be willing to pay for a single share of stock?

a.     48.33

b.    15.00

c.     72.12

d.    52.50

 

 

 

 

 

 

 

 

11.  A prudent investor looks at risk and return in the following way:

a.     Always looking for the least risk

b.    Never considers return in an investment decision

c.     Looking for the highest return for reasonable amount of risk

d.    Seeking out the highest return from investment alternatives

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