Exam 500301 Future Cash
1. Amortized loans must have which one of these characteristics?
A. One lump sum principal payment
B. Either equal or unequal principal payments over the life of the loan
C. Increasing payments over the life of the loan
D. Equal interest payments over the life of the loan
2. Why is “preferred” stock given that name?
A. Despite its deceptive name, preferred stock is actually a special kind of debt with a AAA rating, and the debt holders can vote in stockholder elections.
B. It’s stock that’s preferred by investors because of its high performance and the fact that it’s in the S&P 500 and other stock market indexes.
C. While all stockholders have rights to dividends, preferred stockholders also can vote on changes to the corporate charter and can vote to hire and fire executives, whereas common stockholders can’t.
D. Preferred stockholders have preferential treatment over common stockholders; they’re usually paid first and sometimes have additional voting rights.
3. Would you expect to pay a higher interest rate for an unsecured loan for $2,000 or a secured loan for the same amount?
A. The rate for both would be about the same on average.
B. The secured loan would be at a higher rate.
C. The unsecured loan would be at a higher rate.
D. The rate for each loan would vary based on inflation.
4. What’s the present value of $4,500, discounted at eight-percent interest per period, for two periods? (Round your answer to the nearest dollar.)
A. $3,858
B. $4,160
C. $3,932
D. $4,166
5. Which of the following is a network-based, over-the-counter exchange, with no physical marketplace?
A. NYSE (New York Stock Exchange)
B. NYMEX (New York Mercantile Exchange)
C. NASDAQ (National Association of Securities Dealers Automated Quotations)
D. WSJ (Wall Street Journal)
6. You can’t attend the shareholder’s meeting for Alpha United, so you authorize another shareholder to vote on your behalf. The granting of this authority is called
A. alternative voting.
B. straight voting.
C. voting by proxy.
D. cumulative voting.
7. New Homes has a bond issue with a coupon rate of 5½ percent that matures in 8½ years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What’s the yield to maturity?
A. 6.36 percent
B. 6.42 percent
C. 5.74 percent
D. 5.92 percent
8. A floor broker on the NYSE
A. trades for his or her personal inventory.
B. supervises the commission brokers of a specific financial firm.
C. executes orders on behalf of a commission broker.
D. maintains an inventory and assumes the role of a market maker.
9. What’s it called when we use a table or spreadsheet to track a loan balance, payments, and the portion of these payments that can be attributed to interest and paying off the principal?
A. Loan tracking
B. Loan matrix
C. Loan amortization
D. Loan payment plan
10. Most investments can be valued by looking at all future cash flows. The cash flows from stocks are usually paid as
A. net income.
B. bond yields.
C. dividends.
D. capital gains.
11. Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the company announced that future dividends will be increasing by 2.8 percent annually. If you require a return of 11.6 percent, how much are you willing to pay to purchase one share of this stock today?
A. $15.57
B. $16.00
C. $16.67
D. $18.23
12. You own a classic car currently valued at $64,000. If the value increases by 2½ percent annually, how much will the car be worth 15 years from now?
A. $86,008.17
B. $92,691.08
C. $80,013.38
D. $91,480.18
13. The next dividend (D1) for the Jimmy Company will be $6 per share. Investors require a 20-percent return on companies such as the Jimmy Company. Jimmy’s dividends are expected to increase by 10 percent every year. Based on the dividend growth model, what’s the value of the stock today?
A. $60
B. $30
C. $66
D. $120
14. Suppose that you buy a $2,000 bond with a 10-percent annual coupon, payable semiannually on January 1st and July 1st. On both January 1st and July 1st, the bondholder will receive $100 for a total annual interest payment of $200 ($100 + $100). Based on the principal and accrued interest only, how much would you expect to pay to purchase this bond on April 1st?
A. $2,050
B. $2,000
C. $2,100
D. $2,200
15. Assume that a corporation wants to borrow $100,000 by issuing one hundred 10-year, $1,000 bonds. The interest rate required for similar bonds from similar corporations is 11 percent. What’s the bond’s face value?
A. $111,000
B. $1,000
C. $1,110
D. $110
16. Today, you deposit $1,500 into an account that pays six-percent interest annually. How much will you have in the account after five years? (Round your answer to the nearest dollar.)
A. $2,007
B. $2,097
C. $1,894
D. $1,950
17. Megan is thinking about creating a small college fund for her daughter, Jayda, to help Jayda with the first year of tuition. Jayda is four years from starting university, and Megan estimates that tuition will be about $10,000. Megan has $10,000 today, but she wants to spend some of it on a new computer. How much of the $10,000 will Megan need to invest today in an account with a seven-percent interest rate to have enough in four years to pay for the first year of college? (Round your answer to the nearest dollar.)
A. 7,200
B. 7,932
C. 7,629
D. 8,327
18. While researching construction loans, you discover you can take out a Bank of America five-year, $200,000 loan with eight-percent interest compounded annually, or a Chase Bank loan with the same terms—except that the eight-percent interest is compounded semiannually. You know you won’t be able to make any payments on the loan until you sell the building at the end of year five. Which loan will result in the lowest interest expense?
A. The Chase Bank loan
B. The Bank of America loan
C. It doesn’t make any difference; the interest expense will be the same.
D. It isn’t possible to determine the interest expense of these loans with the information provided.
19. What’s the present value of the right to receive three equal payments, with the first payment starting today (annuity due) of $9,000 per period, discounted at a rate of 10 percent per period? (Round your answer to the nearest dollar.)
A. $24,620
B. $27,000
C. $22,382
D. $15,620
20. The Pet Tracker Company announced that their dividend next year (D1) will be $18 per share. Investors require a 25-percent return on companies such as the Pet Tracker. The firm’s dividends are expected to increase by five percent every year. Based on the dividend growth model, what’s the value of the stock today?
A. $95
B. $45
C. $72
D. $90
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