1.

Which of the following scenarios of market interest rate will provide the lowest
market value of a bond if the bond's coupon rate is 8.5%
The scenario with the highest market interest rate will provide the lowest market value of the
bond because the bond's fixed coupon payments will be less attractive compared to new bonds
offering higher yields.
A.9% B. 8% C. 7% D. 6%
2. Which of the following is a benefit of capital budgeting?
A. It ensures efficient use of company human resources
B. It shows how the company's profits were generated
C. It ensures the company is considering risks and returns before making an investment
D. It allows a business to measure how effective its operations decisions are
3. In a typical loan amortization schedule, the total dollar amount of money paid each
period
A. increases with each payment
B. decreases with each payment
C. remains constant with each payment
4. The internal rate of return method:
A. does not consider inflows after the cutoff period
B. calculates the interest rate that equates outflows with subsequent inflows
C. determines the time required to recoup the initial investment
D. determines whether future benefits justify current expenditures
5. Treasury bills are:
A. government obligations with a maturity of 1-3 years
B. sold at a discount to face value
C. the only government security that pays cash dividends
D. extremely illiquid, although extremely safe
6. Suppose that you purchase a 182-day Treasury bill for $9,850 that is worth $10,000 when
it matures. The security's annualized yield if held to maturity is about
A. 1.5%. B. 2.3%. C. 3.1%. D. 6%
7. If nominal rate of return is 10%/year and annual effective rate of interest is 10.25%,
determine the frequency of compounding:
A. 1 B. 2 C. 3 D. 4
9. Which sentence best describes a bond
A. An instrument that promises to pay fixed interest periodically and principal value at the end.
B. An instrument that gives its holder the ownership right
C. An instrument that is issued only by governments
D. An instrument with maturity of less than 1 year
10. Investors will be indifferent between two investments if both investments have the same
expected return
A. True B. False
11. The true owners of the corporation are the
A. holders of debt issues of the firm. B. preferred stockholders.
C. board of directors of the firm. D. common stockholders.
12. A corporation needing cash sells securities to investors in the secondary market.
A. True B. False
13. You are considering borrowing $10,000 for 4 years at an annual interest rate of 6%.
The loan agreement calls for 4 equal payments, to be paid at the end of each of the next 4
years. The annual payment that will fully pay off (amortize) the loan is closest to
A. $2,674. B. $2,886. C. $3,741. D. $4,020.
14. You want to have $25,000 in your savings account five years from now, and you'll make
equal annual deposits into the account at the end of each year. If the account pays 9.5%
interest, what amount must you deposit each year?
A. $4135.9 B. $4273.5 C. $4613.4 D. $4722.1
15. You are offered an investment that requires you to put up $13,000 today in exchange
for $39.000 twelve years from now. What is the annual rate of return on this investment?
A. 8.02% B. 8.75% C. 9.59% D. 10.21%
16. You are looking into an investment that will pay you $12,000 per year for the next 10
years. If you require a 15% return, what is the most you would pay for this investment?
A. $60,225 B. $58,763 C. $55,650 D. $52,750
17. A T-Bill with 64 days from settlement to maturity is selling for $0.995 per $1 of
maturity value. The T-Bill discount is closest to:
A. 2.81% B. 2.86% C. 2.9% D. 2.95%
18. One advantage of organized stock exchanges is increased stock price volatility resulting
from the efficient exchange of pricing information
A. True B. False
19. An example of a secondary market transaction involving a capital market security is
A. a new issue of a security with a very short maturity.
B. a new issue of a security with a very long maturity.
C. the transfer of a previously-issued security with a very short maturity.
D. the transfer of a previously-issued security with a very long maturity.
20. At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14
years?
A. 6 percent B. 5 percent C. 7 percent D. 8 percent
21. Assume that you have $100,000 invested in a stock that is returning 14%, $150,000
invested in stock that is returning 18%, and $200,000 invested in a stock that is returning
15%. What is the expected return of your portfolio
A. 13.25% B. 14.97% C. 15.67% D. 15.78%
25. Which of the following bonds would you prefer to buy?
A. a $10,000 face-value security with a 10 percent coupon selling for $9,000
B. a $10,000 face-value security with a 7 percent coupon selling for $10,000
C. a $10,000 face-value security with a 9 percent coupon selling for $10,000
D. a $10,000 face-value security with a 10 percent coupon selling for $10,000
26. Which of the following statements about the characteristics of debt and equities is
TRUE?
A. They can both be long-term financial instruments.
B. Bond holders are residual claimants.
C. The income from bonds is typically more variable than that from equities.
D. Bonds pay dividends.
27. An investment has grown from $100.00 to $160.00 or 60% over four years. What
annual increase results in a 60% increase over four years?
A. 7.50% B. 12.47% C. 15.00% D. 13.24%
28. An example of a secondary market transaction involving a capital market security is
A. a new issue of a security with a very short maturity.
B. a new issue of a security with a very long maturity.
C. the transfer of a previously-issued security with a very short maturity.
D. the transfer of a previously-issued security with a very long maturity.
29. At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14
years?
A. 6 percent B. 5 percent C. 7 percent D. 8 percent
30. Net working capital is the difference between current assets and current liabilities.
A. True B. False
Part 2. Each question carries 0.4 point
31. You take a loan of USD 50,000 from a bank. The rate of interest is 10%/year. The first
installment will be paid at the end of year 5. Determine the amount of equal annual
installments if you wish to repay the amount in 5 installments.
A. 19500 USD B. 19400 USD C. 19311 USD D. 13839 USD
E. None of the above that will
32. Suppose you have just celebrated your 19th birthday. A rich uncle has set up a fund for
you to pay you $150,000 when you turn 25. If the discount rate is 9%, how much is this
fund worth today:
A. $58,130 B. $63,362 C. $73,330 D. $89,440
E. None of the above
33. How long does it take to have 50000USD from a deposit of 4000USD, semi-annual
interest rate of 8%/year

A. 6.62 years B. 5.44 years C. 3.55 years D. 2.85 years

34. Bart's Moving Company bonds have a 11% coupon rate. Interest is paid semiannually.
The bonds have a par value of $1,000 and will mature 8 years from now. Compute the
value of Bart's Moving Company bonds if the investors' required rate of return is 9.5%.
A. $1,197.27 B. $1,133.05 C. $1,098.99 D. $1,082.7535.
35. You are 21 years old today. Your grandparents set up a trust fund that will pay you
$25,000 per year for 20 years, starting on your 65th birthday to supplement your
retirement. If the trust can earn 7.5% per year, how much will your grandparents need to
put in the trust fund today (rounded to the nearest ten dollars)?
A. $11,370 B. $22,310 C. $5,250 D. $17,450
36. Your daughter is born today and you want her to be a millionaire by the time she is 35
years old. You open an investment account that promises to pay 12% per year. How much
money must you deposit each year, starting on her 1st birthday and ending on her 35th
birthday, so your daughter will have $1,000,000 by her 35th birthday?
A. $2,317 B. $3,455 C. $5,777 D. $9,450
37. Your company has received a $50,000 loan from an industrial finance company. The
annual payments are $6,202.70. If the company is paying 9 percent interest per year, how
many loan payments must the company make?
A. 12 B. 13 C. 15 D. 19
38. You have a son today and you want your child to be a millionaire. You deposit $10,000
in an investment account that earns 7% per year. The money in the account will be
distributed to your son whenever the total reaches $1,500,000. How old will your son be
when he gets the money (rounded to the nearest year?
A. 82 years B. 74 years C. 60 years D. 49 years
39. If a $10,000 par T-bill has a 3.8 percent discount quote and a 90-day maturity, what is
the price of the T-bill to the nearest dollar?
a.9,915$ b. 9,848$ c. 9,846$ d. 9,905$
e. 9,923$ f. None of the above