ADMS 3541 Lecture Notes - Tax Rate, Recreation Room, Bobby Rich

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pearimpala756

2 Apr 2013

School

York University

Department

Administrative Studies

Course

ADMS 3541

Professor

Chris Robinson

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Document Summary

Question 1 (20 marks, 4 marks each part) The following parts of the question are unrelated: (a)fred heath wants to borrow for 20 days from the friendly payday. The company charges a flat rate of per loan, plus 6% on the principal, plus ear of 50% on the first borrowed and ear of. Calculate (i) the cost of the loan for fred, and (ii) the ear of the loan. (b)chris poor just inherited ,000. If he can borrow at 5% interest to invest in a mutual fund that (c) jill bought a house 15 years ago for ,000, and she bought a home insurance policy to provide coverage for ,000 of replacement value. There is an inflation protection provision in the policy so that the amount of insurance coverage automatically increases every year at the rate of inflation. The current replacement value of the house is. The average rate of inflation has been 2. 5% per year.

Related Questions

Question 1 of 25

You are planning to deposit $1,000 in a savings account. Account A compounds semiannually while account B compounds monthly. If both accounts have the same quoted annual rate of interest, you should choose _______________.

A. either account since both quote the same rate of interest

B. account A because it has a higher APR

C. account A because it has a higher EAR

D. account B because it is compounded more often

Question 2 of 25

You are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and the other is an annuity due. Which of the following is FALSE?

A. The ordinary annuity must have a lower future value than the annuity due.

B. The ordinary annuity must have a higher present value than the annuity due.

C. The two annuities will differ in present value by the amount (1+r).

D. The annuity due and the ordinary annuity will make the same number of total payments over time.

Question 3 of 25

What is the total present value of $80 received in one year, $300 received in two years, and $700 received in six years if the discount rate is 7%? Note: There is no direct formula for this kind of PV computation other than the basic equation, PV = FV/(1+r)t. 0 1 2 3 4 5 6 |-----------|----------|----------|----------|----------|---------| PV=? $80 $300 $700

A. $582.72

B. $681.68

C. $757.25

D. $803.24

Question 4 of 25

You need to borrow $23,000 to buy a car. The current loan rate is 7.9% APR compounded monthly and you want to pay the loan off in equal monthly payments over 5 years. What is the correct computation to find your monthly payment (C)?

A. C = $23,000 [PVIFA(7.9%/12, 60)]

B. $23,000 = C [1 - (1/1.0795)] / .079

C. $23,000 = C [1 - (1 /1.0065860)] / .00658

D. C = $23,000 [1 - (1/1.07960)] / .079

Question 5 of 25

The monthly mortgage payment on your house is $821.69. It is a 30-year mortgage at an APR of 6.5% compounded monthly. How much did you borrow? Note: PVIFA(r, t) = [1 â 1/(1+r)t] / r, and of course, you can use your calculator here.

A. $100,000

B. $115,000

C. $130,000

D. $140,000

Question 6 of 25

You just won the lottery and you are given two choices for your prize money: (1) A present lump sum of $20 million or (2) $1 million per year that you and your heirs will receive forever, beginning one year from now. If the appropriate interest rate is 5%, which should you choose and why? Note: PV of a perpetuity = C/r

A. Either, because both have the same present value.

B. (1) because it has a higher present value.

C. (2) because it has a higher present value.

D. (2) because it has a higher future value.

Question 7 of 25

What is the effective annual rate of 6% compounded quarterly? Note: EAR = (1 + APR/m)m â 1.0, where m is the number of compoundings in a year.

A. 6.00%

B. 6.14%

C. 7.50%

D. 24.00%

Question 8 of 25

At the end of each year for the next 8 years you will receive cash flows of $500. The initial investment is $2,500. Which of the following is the correct equation to find the rate of return (r) you are expecting from this investment?

A. $2,500 = $500 [1/(1+r)8 â 1] / r

B. $500 = $2,500 [PVIFA(r%,8)]

C. $500 = $2,500 [FVIFA(r%,8)]

D. $2,500 = $500 [1 â 1/(1+r)8] / r

Question 9 of 25

Consider the following cash flow stream. What is the correct way to find the present value of this cash flow stream at a 10% discount rate? 0 1 2 3 4 5 6 7 8 9 10 |----------|----------|----------|----------|----------|----------|---------|----------|----------|----------| PV=? $35 $35 $35 $35 $35 $35 $20 $20 $20 $20

A. PV = 35 [PVIFA(10%, 6)] + 20 [PVIFA(10%, 4)]

B. PV = 20 [PVIFA(10%, 10)] + 15 [PVIFA(10%, 6)]

C. PV = 35 [PVIFA(10%, 10)] â 15 [PVIFA(10%, 4)]

D. PV = 35 [PVIFA(10%, 6)]/(1.10)6 + 20 [PVIFA(10%, 4)]

Question 10 of 25

You plan to amortize your $10,000 loan by making five equal payments over the next 5 years. The interest rate is 5% compounded annually. What number should appear in (A) of your amortization table below? Note: PVIFA(5%, 5)=4.3295.

Beginning Ending Year Loan Balance Payment Interest Principal Loan Balance

----------------------------------------------------------------------------------------------

1 $10,000 xxxx xxx xxx xxxx

2 ( A ) xxxx xxx xxx xxxx

3 xxxx xxxx xxx xxx xxxx

4 xxxx xxxx xxx xxx xxxx

5 xxxx xxxx xxx xxx 0

A. $8,457.12

B. $8,190.26

C. $7,690.26

D. $6,809.74

Question 11 of 25

The rate of return required by investors for owning a bond to its maturity is called the

A. coupon rate.

B. current yield.

C. dividend yield.

D. yield to maturity.

Question 12 of 25

Which of the following statements regarding bond terminologies is INCORRECT?

A. The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the indenture.

B. The unsecured long-term debts of a firm are commonly called debentures.

C. An agreement giving the bond issuer the option to repurchase the bond at a specified price prior to maturity is called the zero provision.

D. A special account that sets aside periodic payments for bond redemption is called a sinking fund.

Question 13 of 25

Which of the following statements regarding bond trading is INCORRECT?

A. The long-term bonds issued by state and local governments in the United States are called municipal bonds.

B. The long-term bonds issued by the U.S. government are called Treasury Bills.

C. A bond that makes no coupon payments (and thus is initially priced at a deep discount) is called a zero coupon bond.

D. The price a dealer is willing to pay for a security is called the bid price.

Question 14 of 25

Which bond would most likely possess the least degree of interest rate risk?

A. 8% coupon rate, 12 years to maturity

B. 8% coupon rate, 15 years to maturity

C. 10% coupon rate, 10 years to maturity

D. 12% coupon rate, 8 years to maturity

Question 15 of 25

What is the value of a bond that will pay a total of 50 semiannual coupons of $80 each over the remainder of its life? The yield to maturity is 12%, p.a. Note: B = C [{1 â 1/(1+y)t}/y] + F /(1+y)t. Be careful about specifying t and y for this semiannual bond.

A. $ 734.86

B. $ 942.26

C. $1,135.90

D. $1,315.24

Question 16 of 25

Dizzy Corporationâs 10-year semiannual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond?

A. B = 120 [PVIFA(12%, 10)] + 1,000 [PVIF(12%, 10)]

B. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]

C. $950 = 120 [PVIFA(r, 10)] + 1,000 [PVIF(r, 10)]

D. B = 60 [PVIFA(6%, 20)] + 1,000 [PVIF(6%, 20)]

Question 17 of 25

To find the yield-to-maturity of the bond in Question #16 by trial and error, which number (as a semiannual YTM) should you pick as your first try?

A. 5%

B. 6%

C. 7%

D. Any number (like one of your favorite lotto numbers).

Question 18 of 25

George bought an investment one year ago and just calculated his return on investment. He found that his purchasing power has increased by 15% as a result of his investment. If the inflation over the period was 4%, his _______________. Note: (1+R) = (1+r)(1+h), but you donât need calculation here.

A. real return on investment is more than 15%

B. nominal return on investment is more than 15%

C. nominal return on investment is 11%

D. real return on investment is equal to 4%

Question 19 of 25

Which statement is INCORRECT given the following Treasury quotes? Maturity Coupon Bid Ask(ed) Chg Ask(ed) Yld ---------------------------------------------------------------------------------------- 5/15/2030 6.250 150.7188 150.7500 .8906 2.713

A. The amount of each coupon on this bond is $31.25.

B. The ask(ed) price is $1,507.50.

C. The dealer is willing to sell this bond to you for 150.7188% of par.

D. This bondâs ask(ed) price rose by $8.906 (i.e., eight dollars and 90+ cents) from the previous trading day.

Question 20 of 25

Which of the following statements regarding stock trading is INCORRECT?

A. Stock that has priority for dividends and bankruptcy liquidation is called priority equity.

B. The short alphabetic abbreviation for an exchange-listed stock by which the issue is identified in the market is called the stock's ticker symbol.

C. Capital gains yield is the rate of return based on the stock price increase.

D. Proxy voting is the voting procedure where shareholders grant authority to another individual to vote their shares.

Question 21 of 25

What would you pay for a share of ABC Corporation stock today if the next dividend will be $3 per share, your required return on equity investments is 15%, and the stock is expected to be worth $90 one year from now? (Remember the stock price today is the PV of its future cash flows, i.e., dividends and the future stock price, properly discounted)

A. $75.00

B. $78.26

C. $80.87

D. $90.00

Question 22 of 25

A preferred stock that pays a constant dividend of $1.50 currently sells for $10.71. What is the required rate of return? Note: P0 = D/R for a preferred stock.

A. 14%

B. 13%

C. 12%

D. 10%

Question 23 of 25

A stock with a constant dividend growth rate of 5% is expected to make a $2 dividend in one year. If you require a 12% return on your investment, which of the following statements is INCORRECT? Note: P0 = D1/(Râg) or R = (D1/P0) + g.

A. The current stock price is $28.57.

B. The dividend yield is 7%.

C. The capital gains yield is 12%.

D. The stock price will grow at an annual 5%.

Question 24 of 25

McIver, Inc. currently pays a $2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% for the following year, and 6% annually thereafter. The required return is 10%. What is the current price of the stock?

A. $63.27

B. $60.80

C. $58.71

D. $54.90

Question 25 of 25

Which statement is INCORRECT given the following stock quotes? Prev Close 44.34 Dayâs Range 43.45 â 44.37 Bid 44.01 x 1,200 Volume 908,587 Ask 44.02 x 400 P/E 17.26 Beta 2.4 EPS 2.55 Market Cap 10.11B Div & Yield 0.50 (1.10%)

A. At this point someone was willing to buy 1,200 shares of this stock for $44.01 a share.

B. The yield-to-maturity for this stock is 1.1%.

C. On this trading day so far 908,587 shares changed hands.

D. The total value of this companyâs stock is (about) $10,110 million.

home / study / business / accounting / questions and answers /1your family owns a velociraptor skeleton that ...

Question

1Your family owns a velociraptor skeleton that is currentlyvalued at $86.7 thousand. Your grandfather, being an avid fossilcollector, bought it 50 years ago for $24.8 thousand. If theskeleton keeps appreciating at the same average annual rate, whatwould be its value 25 years from now?

2You would like to establish a trust fund that would pay annualpayments to your heirs of $98 thousand a year forever. You expectthe trust fund to earn an average return of 8.84 percent. How muchdo you need to deposit into this trust fund today to achieve yourgoal?

3You are thinking of investing in a project that will pay you$100,000 7 years from now, and another $100,000 10 years from now.You think the right discount rate for the project is 6.9%. What isthe maximum you should be willing to pay for this investment?

4A firm recently purchased a new facility costing $962 thousand.The firm financed this purchase with an amortized loan at aninterest rate of 9.7 percent APR, with monthly payments of $16.1thousand. How long will it take to pay off this loan? (Enter answerin months, accurate to two decimal places.)

5An investment is expected to produce $2,370 at the end of eachyear for the next 10 years. Other investments of similar riskinessavailable to you are yielding 8.4 percent return. What is themaximum you should be willing to pay for this investment?

6You are not thrilled about spending your entire life working.So, you have decided that you will save $6 thousand a year,starting at the end of this year, and retire as soon as you canaccumulate $1 million. If you can earn an average of 8.47 percenton your savings, how many years will pass before you get toretire?

7How much money must you invest today, at 7.7 percent fixedannual interest rate, in order to have 10 thousand in 13 years?

8You have $1,895 today, and want to double your money in 19years. What interest rate must you earn to achieve your goal?

9The house you want to buy costs $260 thousand. You plan to makea cash down payment of 10 percent, and borrow the rest in a 30 yearmortgage at 4.8 percent APR. What will be the amount of yourmonthly mortgage payment?

10You estimate that you will need $771 thousand in 30 years tobuy some cybernetic body enhancements, including infrared vision,retractable claws, and expanded brain storage capacity. To achieveyour financial goal, you want to make three equal-sized depositsinto an account paying a fixed annual rate of 8.82%. The firstdeposit will be made right now, the second 10 years from now, andthe third 20 years from now. What is the size of each deposit youneed to make in order to partake of future cybernetic goodness?(Hint: draw this out on a timeline.)

harlequinmuskrat771

Question 11

Ronald's gross income is $60,000, and his living expensesconsume 75 percent of his gross income. According to financialexperts, Ronald should set aside ____ to cover emergencies.

	A.	$5,000 to $10,000
	B.	$22,500 to $45,000
	C.	$11,250 to $22,500
	D.	$15,000 to $30,000

Question 12

Which of the following is not a benefit of a savingsaccount?

	A.	A way to achieve short-term savings goals
	B.	Builds funds for large, irregular expenses
	C.	Protection against inflation
	D.	A way to save for your child's education

Question 13

Stock brokerage firms typically offer

	A.	money market mutual fund accounts.
	B.	savings accounts.
	C.	certificates of deposit.
	D.	checking accounts.

Question 14

Absent-minded Alfred lost his ATM card on May 1. He reported itmissing the next day; however, $600 had been withdrawn from hischecking account. According to the Electronic Funds Transfer Act,how much of this $600 loss is Alfred responsible for?

	A.	$600
	B.	$50
	C.	$500
	D.	$0

Question 15

A check drawn on a financial institution, backed by thefinancial institution's finances, and made out to a specific payeeis called a

	A.	cashier's check.
	B.	money order.
	C.	certified check.
	D.	traveler's check.

Question 16

If Gus Solis believes interest rates are going to fall in thenear future and remain low for several years, Gus should now

	A.	invest in a long-term, fixed-rate certificate of deposit.
	B.	bury his money in fruit jars in the back yard.
	C.	invest in a variable-rate certificate of deposit.
	D.	invest in a short-term, fixed-rate certificate of deposit.

Question 17

Which of the following could be the most expensive way ofprotecting yourself from fees should you overdraft your checkingaccount?

	A.	An automatic funds transfer agreement
	B.	Paying the overdraft/bounced check fee
	C.	Opt-in overdraft/bounce protection
	D.	An automatic overdraft loan agreement

Question 18

Not-for-profit, common-bond financial institutions that areowned by their members are called

	A.	credit bureaus.
	B.	mutual savings banks.
	C.	savings banks.
	D.	credit unions.

Question 19

The Federal Deposit Insurance Corporation (FDIC) currentlyinsures against loss of up to ____ per person in an individualaccount at any one institution.

	A.	$50,000
	B.	$100,000
	C.	$250,000
	D.	$500,000

Question 20

Which of the following types of payment instruments could youget at your local post office?

	A.	Traveler's check
	B.	Cashier's check
	C.	Certified check
	D.	Money order

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ADMS 3541 Lecture Notes - Tax Rate, Recreation Room, Bobby Rich

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