QUIZ 2

A 3-year bond with 10% coupon rate and $1000 face value yields 8% APR. Assuming annual coupon
payment, calculate the price of the bond. $1051.54

Trish receives $480 on the first of each month. Josh receives $480 on the last day of each month.
Both Trish and Josh will receive payments for next three years. At a 9.5 percent discount rate, what
is the difference in the present value of these two sets of payments? $118.63

You are borrowing $17,800 to buy a car. The terms of the loan call for monthly payments for 5 years
at 8.6 percent interest. What is the amount of each payment? $366.05

You would like to have enough money saved to receive $80,000 per year perpetuity after retirement
so that you and your family can lead a good life. How much would you need to save in your
retirement fund to achieve this goal (assume that the perpetuity payments start one year from the
date of your retirement. The interest rate is 8%)? $1,000,000

Your grandmother is gifting you $100 a month for four years while you attend college to earn your
bachelor's degree. At a 5.5 percent discount rate, what are these payments worth to you on the day
you enter college? $4,299.88

The opportunity cost of capital for a risky project is The expected rate of return on a portfolio of
securities of similar risks as the project

An initial investment of $400,000 will produce an end of year cash flow of $480,000. What is the NPV
of the project at a discount rate of 20%? $0 (zero)

Miley expects to receive the following payments: Year 1 = $60,000; Year 2 = $35,000; Year 3 =
$12,000. All of this money will be saved for her retirement. If she can earn an average of 10.5
percent on her investments, how much will she have in her account 25 years after making her first
deposit? $1,231,776

You would like to have enough money saved to receive a $50,000 per year perpetuity after
retirement so that you and your family can lead a good life. How much would you need to save in
your retirement fund to achieve this goal (assume that the perpetuity payments starts on the day of
retirement. The interest rate is 8%)? $675,000

A three-year bond has 8.0% coupon rate and face value of $1000. If the yield to maturity on the
bond is 10%, calculate the price of the bond assuming that the bond makes semi-annual coupon
interest payments. $949.24

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year.
How much should you have saved in the retirement to receive this income, if the interest is 9% per
year (assume that the payments start on the day of retirement)? $802,995.88

QUIZ 3

Which bond is more sensitive to an interest rate change of 0.75%? (Bond A: YTM = 4.00%, Maturity =
8 years, Coupon = 6% or $60, Par Value = $1,000; Bond B: YTM = 3.50%, Maturity = 5 years, Coupon
= 7% or $70, Par Value = $1,000) Bond A

Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations
can generate cash flows of $187,000, $220,000, and $245,000 over the next three years,
respectively. After that time, they feel the business will be worthless. Southern Tours has
determined that a 13.5 percent rate of return is applicable to this potential acquisition. What is
Southern Tours willing to pay today to acquire Holiday Vacations? $503,098

You need some money today and the only friend you have that has any is your miserly friend. He
agrees to loan you the money you need, if you make payments of $25 a month for the next six
months. In keeping with his reputation, he requires that the first payment be paid today. He also
charges you 1.5 percent interest per month. How much money are you borrowing? $144.57

A General Co. bond has a coupon rate of 7 percent and pays interest annually. The face value is
$1,000 and the current market price is $1,020.50. The bond matures in 20 years. What is the yield to
maturity? 6.81%

Deluxe Company expects to pay a dividend of $2 per share at the end of year-1, $3 per share at the
end of year-2 and then be sold for $32 per share. If the required rate on the stock is 15%, what is the
current value of the stock? $28.20

he Lo Sun Corporation offers a 6% bond with a current market price of $875.05. The yield to maturity
is 7.34%. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond
matures? 16 years

A four-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is
$878.31, calculate the yield to maturity of the bond (assuming annual interest payments). 12%

Miley expects to receive the following payments: Year 1 = $60,000; Year 2 = $35,000; Year 3 =
$12,000. All of this money will be saved for her retirement. If she can earn an average of 10.5
percent on her investments, how much will she have in her account 25 years after making her first
deposit? $1,231,776

A government bond issued in Germany has a coupon rate of 5%, face value of euros 100 and
maturing in five years. The interest payments are made annually. Calculate the yield to maturity of
the bond (in euros) if the price of the bond is 106 euros. 3.80%

You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual
payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you
today? $180,238.81