Question 7 You just inherited some money, and a broker offers to sell you an ann

Question

Question 7

You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each year for 20 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Answers

$50,753

$53,424

$56,236

$59,195

$62,311

Question 8

What is the present value of the following cash flow stream at a rate of 12.0%?

Answers

$9,699

$10,210

$10,747

$11,284

$11,849

Question 9

Master Card and other credit card issuers must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 18.00%, with interest paid monthly, what is the card's EFF%?

Answers

18.58%

19.56%

20.54%

21.57%

22.65%

Question 10

Suppose you are buying your first condo for $145,000, and you will make a $15,000 down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly payments be?

Answers

$741.57

$780.60

$821.69

$862.77

$905.91

Question 11

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

Answers

The company's bonds are downgraded.

Market interest rates rise sharply.

Market interest rates decline sharply.

The company's financial situation deteriorates significantly.

Inflation increases significantly.

Question 12

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:

T-bond = 7.72%

A = 9.64%

AAA = 8.72%

BBB = 10.18%

The differences in rates among these issues were most probably caused primarily by:

Answers

Real risk-free rate differences.

Tax effects.

Default risk differences.

Maturity risk differences.

Inflation differences.

Question 13

Which of the following statements is CORRECT?

Answers

If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices.

The total yield on a bond is derived from dividends plus changes in the price of the bond.

Bonds are riskier than common stocks and therefore have higher required returns.

Bonds issued by larger companies always have lower yields to maturity (less risk) than bonds issued by smaller companies.

The market value of a bond will always approach its par value as its maturity date approaches, provided the bond's required return remains constant.

You just inherited some money, and a broker offers to sell you an annuity that pays $5,000 at the end of each year for 20 years. You could earn 5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Answers

$50,753

$53,424

$56,236

$59,195

$62,311

Explanation / Answer

7) option e) 62311 8) You have to give cash flows to answer this question It is must to caliculate present value (Npv = cash out flow - cash inflows) 9) option b) 19.56% 10) option e) $905.91 11) Market interest rates rise sharply 12) Maturity risk differences 13) The market value of a bond will always approach its par value as its maturity date approaches, provided the bond's required return remains constant

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