QUESTION 1 You buy a bond that will mature at the end of 8 years and pay you the

Question

QUESTION 1

You buy a bond that will mature at the end of 8 years and pay you the face value of $1000 at that time. The bond also pays interest every 6 months at an annual “coupon rate” of 6%. The current yield of this bond is 7%. The amount of interest you receive every 6 months =

$15

$25

$30

$50

QUESTION 2

You borrow $10,000 for a car. Your 5-year loan has a monthly payment of $205. Your annual interest rate is closest to:

3.0%

6.0%

9.0%

12.0%

QUESTION 3

You spend $40,000 to upgrade your heating and cooling system and add insulation to your building. As a result, you expect to reduce electricity costs by $12,000 per year for each of the next 6 years. The rate of return on this investment is closest to:

6%

15%

18%

20%

QUESTION 4

You spend $40,000 to upgrade your heating and cooling system and add insulation to your building. As a result, you expect to reduce electricity costs by $12,000 per year for each of the next 6 years. Which equation correctly calculates the rate of return on this investment?

40000 = 12000(P/A,i,6)

40000 = 12000(A/P,i,6)

40000(P/A,i,6) = 72000

40000(P/A,i,6) = 12000(A/P,i,6)

QUESTION 5

If a potential project’s calculated internal rate of return is greater than or equal to the minimum attractive rate of return (MARR):

the project is economically justified and should be accepted

the project is economically justified but should be rejected

the project is not economically justified and should be rejected

the project is not economically justified but should be accepted

QUESTION 6

You won the lottery and can either receive a one-time payment of $500,000 or receive 20 annual payments of $50,000 each. If you give up the 20 annual payments and accept the one-time payment of $500,000, which equation will determine your IRR?

500,000(P/A,i,20) = 50,000

i = 50,000/500,000

500,000 = 50,000(A/P,i,20)

500,000 = 50,000(P/A,i,20)

  

QUESTION 7

Which is true about the internal rate of return (IRR) of an investment?

IRR is the interest rate that allows PWb to exceed PWc

IRR is the interest rate when PWb = PWc

IRR is the interest rate when B/C > 1

IRR is the interest rate when B/C <1

  

QUESTION 8

You donate $150,000 for an endowed scholarship at OIT. What rate of return must be received on your investment to be able to pay a deserving student $7,500 per year indefinitely?

4.7%

5.0%

8.5%

10.0%

QUESTION 9

You buy a bond that will mature at the end of 8 years and pay you the face value of $1000 at that time. The bond also pays interest every 6 months at an annual “coupon rate” of 6%. The current yield of this bond is 7%. The market price of this bond =

$940

$1000

$1095

$1109

QUESTION 10

You consider spending $3,500,000 to build a new office complex. You expect this will produce $850,000 in net rental income per year for 10 years. You will only invest if the expected IRR (your MARR) is at least 18%. Should you invest in this complex?

Yes, because IRR > 18%

Yes, because IRR < 18%

No, because IRR > 18%

No, because IRR < 18%

QUESTION 11

You buy a bond that will mature at the end of 8 years and pay you the face value of $1000 at that time. The bond also pays interest every 6 months at an annual “coupon rate” of 6%. The current yield of this bond is 7%. Based on the current yield, the market price of the bond is:

P = $1000

P = 30(P/A,3%,16) + 1000(P/F,3%,16)

P = 30(P/A,3.5%,8) + 1000(P/F,3.5%,8)

P = 30(P/A,3.5%,16) + 1000(P/F,3.5%,16)

1 points   

QUESTION 12

You won the lottery and can either receive a one-time payment of $500,000 or receive 20 annual payments of $50,000 each. What is your IRR if you give up the 20 annual payments and accept the one-time payment of $500,000?

IRR = 7.0%

IRR = 7.8%

IRR = 8.6%

IRR = 10.0%

a.

$15

b.

$25

c.

$30

d.

$50

Explanation / Answer

Per the rule, I can help you with first problem only.

Face value FV = 1000

Annual coupon rate = 6%

The coupon is paid semi-annually, therefore, coupon payment amount would be

Coupon payment = FV x coupon rate / no. of coupons in a year:

                              = 1,000 x 6%/2

                             =30

hence, option c is correct

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.