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9 Mar 2019

12. Company HDE is expected to pay an interim dividend of $1.00 six months from now and a final
dividend of $2.10 one year from now. HDE is then expected to repeat the same pattern every year
for the foreseeable future with no growth in dividends. Given that the appropriate effective
discount rate is 7.0% p.a., what is the stock price of HDE closest to today?
A) $30
B) $35
C) $40
D) $45
E) None of the above
13. Which of the following statements is FALSE?
A) The process of moving a value or cash flow forward in time is known as compounding.
B) The effect of earning interest on interest is known as compound interest.
C) It is only possible to compare or combine values at the same point in time.
D) A dollar in the future is worth more than a dollar today.
E) Interest paid only on the principal is simple interest.
14. Consider the following four alternatives:
1. $132 received in two years.
2. $160 received in five years.
3. $200 received in eight years.
4. $220 received in ten years.
The ranking of the four alternatives from most valuable to least valuable if the interest rate is
7% per year would be:
A) 1, 2, 3, 4
B) 4, 3, 2, 1
C) 3, 4, 2, 1
D) 3, 1, 2, 4
E) 3, 1 = 2, 4

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8. You have saved $250,000 for a cash down payment to buy a house. You are currently prepared to
pay up to $3,000 per month for a 20-year mortgage, and your bank is currently charging 4% p.a.
interest, compounded monthly. What amount is closest to the maximum you can pay for a house?
A) $633,453
B) $745,066
C) $824,204
D) $1,205,365
E) None of the above
9. You have just accepted a job offer, which came with a signing bonus of $5,000 to be paid today
in your retirement account. Your employer will also contribute an extra $10,000 at the end of
each full year (you start work tomorrow!). If this account is expected to earn 10% p.a.
compounded semi-annually, which number is closest to the amount of money will you have in
that account after five years? (including the payment for that year).
A) $59,500
B) $65,500
C) $69,500
D) $72,500
E) None of the above
10. Which of the following is/are an advantage of being a publicly listed company?
A) Access to capital markets
B) Limited liability
C) Unlimited life
D) All of the above
E) None of the above
11. A bond with 15 years to maturity is paying 6% coupons semi-annually, and the last coupon has
just been paid. The face value is $1,000 and the yield to maturity is 8% p.a.
What is the price today closest to:
A) $827.08
B) $932.95
C) $1,000.00
D) $1,324.32
E) None of the above
12. Company HDE is expected to pay an interim dividend of $1.00 six months from now and a final
dividend of $2.10 one year from now. HDE is then expected to repeat the same pattern every year
for the foreseeable future with no growth in dividends. Given that the appropriate effective
discount rate is 7.0% p.a., what is the stock price of HDE closest to today?
A) $30
B) $35
C) $40
D) $45
E) None of the above
13. Which of the following statements is FALSE?
A) The process of moving a value or cash flow forward in time is known as compounding.
B) The effect of earning interest on interest is known as compound interest.
C) It is only possible to compare or combine values at the same point in time.
D) A dollar in the future is worth more than a dollar today.
E) Interest paid only on the principal is simple interest.
14. Consider the following four alternatives:
1. $132 received in two years.
2. $160 received in five years.
3. $200 received in eight years.
4. $220 received in ten years.
The ranking of the four alternatives from most valuable to least valuable if the interest rate is
7% per year would be:
A) 1, 2, 3, 4
B) 4, 3, 2, 1
C) 3, 4, 2, 1
D) 3, 1, 2, 4
E) 3, 1 = 2, 4

please show me calculation/workings

try to solve as many as possible please

5. Your friend is considering investing $5,000 at the end of every quarter in a bank account

paying 8% per annum. The first contribution will be made at the end of the first quarter. If

interest is compounded monthly, the total amount she will have accumulated at the end of ten

years is closest to:

a) $228,338.

b) $289,731.

c) $302,010.

d) $302,886.

6. Banks A, B and C offer the following interest rates on one-year bank deposits.

Bank A: 7.9% p.a. compounded monthly.

Bank B: 8.0% p.a. compounded quarterly.

Bank C: 8.1% p.a. compounded semi-annually.

The best interest rate is offered by:

a) Bank A.

b) Bank B.

c) Bank C.

d) The three banks offer equally attractive interest rates.

7. You are thinking about buying a rare collectible that costs $50,000. The dealer is proposing

the following deal. She will lend you the money and you will repay the loan by making the

same payment every two years for the next 20 years. If the interest rate is 4% p.a.

compounded annually, the amount you will have to pay every two years is closest to:

a) $3,679.

b) $5,153.

c) $6,165.

d) $7,505.

8. BLB Ltd has just issued a âcoupon growth bondâ with the following terms. Each bondâs face

value is $1,000 and the bonds will mature in 5 yearsâ time. Coupons will be paid on an annual

basis at the end of each year. The first yearâs coupon will be $100 which will then grow at an

annual rate of 10% until the bonds mature. If the bondâs yield to maturity is 8% per annum, its

price today should be closest to:

a) $972.

b) $1,080.

c) $1,161.

d) $1,275.

9. Consider a five-year bond with a face value of $1,000 paying annual coupons at a rate of 12%

which has a current yield to maturity of 10%. If all interest rates remain unchanged, one year

from today the price of this bond:

a) Will be higher.

b) Will be lower.

c) Will be the same.

d) Cannot be determined without additional information.

10. Your favorite aunty has finally agreed to contribute towards funding your retirement.

Specifically, she will start with a contribution of $6,000 today (that is, end of year 0) but this

amount will then decline at a constant rate of 3% p.a. over the foreseeable future. If the

interest rate appropriate for valuing your auntyâs contribution is 12% p.a. its present value

today is closest to:

a) $38,800.

b) $44,800.

c) $56,000.

d) $70,667.

11. The earnings and dividends of XYX Ltd are expected to grow at a rate of 5%, 10% and 15%

p.a. during years 1 through 3 respectively. After that, the earnings and dividends are expected

to stabilize to a long-run growth rate of 5% p.a. forever. The companyâs current dividend per

share is $1.50 and the required rate of return on the stock is 12% p.a. Based on this

information, the current price should be closest to:

a) $21.27.

b) $25.48.

c) $28.07.

d) $29.89.

12. DBD Ltdâs current dividend and price per share are $1.80 and $10.00 respectively. Market

analysts expect the dividend per share to grow at a constant annual rate over the foreseeable

future. If the expected return on this stock is 15% per annum, the constant annual growth rate

implied by this information is closest to:

a) â3.0%.

b) â2.5%.

c) 2.5%.

d) 3.0%.

13. Market analysts expect the earnings per share of JJC Ltd to be $3.00 next year. The company

has typically retained 60% of its earnings and this policy is expected to continue in the

foreseeable future. The return required by investors on companies in JJCâs risk class is 10%

p.a. If the companyâs earnings and dividends are expected to grow at a constant rate of 4%

p.a., the current share price is closest to:

a) $20.00.

b) $20.80.

c) $30.00.

d) $31.80.

14. You have just settled a lawsuit in your favor and you will be receiving semi-annual payments

of $25,000 over the next ten years. The first payment will occur six months from today. You

plan on investing these payments and you expect to earn a return of 6% p.a. with the returns

compounded monthly. The present value of this investment is closest to:

a) $329,520.

b) $368,004.

c) $370,642.

d) $371,937.

plumhyena675

QUESTION 1 The time value of money refers to the issue of: A. what the value of the stream of future cash flows is today. B. why a dollar received tomorrow is worth more than a dollar received today. C. what the time required to double an amount of money. D. why people prefer to consume things at some time in the future rather than today.

QUESTION 2 The process of converting an amount given at the present time into a future value is called: A. annualizing. B. discounting. C. compounding. D. capital budgeting. 2 points

QUESTION 3 Juan Vinson is planning to buy a house in five years. He is looking to invest $25,000 today in an index mutual fund that will provide him a return of 12 percent annually. How much will he have at the end of five years? (Round to the nearest dollar.) A. $45,000 B. $28,000 C. $44,059 D. $28,530 2 points

QUESTION 4 Which of the following statements is true with respect to the present value of a future amount? A. The higher the discount rate, the higher the present value of a single sum for a given time period. B. The relation between present value and time is exponential. C. The greater the time period, the higher the present value of a single sum for a given interest rate. D. The lower the discount rate, the lower the present value of a single sum for a given time period. 2 points

QUESTION 5 Which of the following statements is true of the rule of 72? A. It can be used to determine the amount of time it takes to double an investment. B. It is fairly accurate for interest rates between 25 and 50 percent. C. It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. D. It can be used to estimate approximate compound interest earned for a period of 72 days. 2 points

QUESTION 6 The present value of future cash flows are computed by multiplying future value with the: A. discounting factor. B. compound factor. C. interest rate. D. number of periods. 2 points

QUESTION 7 The present value of multiple cash flows is: A. greater than the sum of the cash flows. B. equal to the sum of all the cash flows. C. less than the sum of the cash flows. D. higher or lower than the cash flows depending on the interest rate. 2 points

QUESTION 8 Cash flows associated with annuities are considered to be: A. an uneven cash flow stream. B. a constant cash flow stream. C. a mix of constant and uneven cash flow streams. D. a cash flow stream with decreasing trend. 2 points

QUESTION 9 The annuity transformation method is used to transform: A. a present value annuity to a future value annuity. B. a present value annuity to an annuity due. C. an ordinary annuity to an annuity due. D. a perpetuity to an annuity. 2 points

QUESTION 10 The true cost of borrowing is the: A. annual percentage rate. B. effective annual rate. C. quoted interest rate. D. periodic rate.

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