The Winter greens are planning ahead for their son’s education

The Winter greens are planning ahead for their son’s education

Subject: Business    / Finance
Question
22. The Wintergreens are planning ahead for their son’s education. He’s eight now and will start college in 10 years. How much will they have to set aside each year to have $65,000 when he starts if the interest rate is 7%? (round to whole dollar)

a. $9,255

b. $4,704

c. $33,040

d. Cannot determined, need more information

23. John Employee is going to receive $10,000 per year for 20 years from his employer. The interest rate is assumed to be 7%. John wants to find out how much will he have received in total after the last payment is received. What time value of money table should John use to determine that total amount?

a. FV of $1 (table A-1)

b. PV of $1 (table A-2)

c. FV of an annuity of $1 (table A-3)

d. PV of an annuity of $1 (table A-4)

Chapter 7 – The Valuation and Characteristics of Bonds

24. For debt the rate of return (k) is calculated as

a. The money the investor receives timed by the amount she invests.

b. The money the investor receives added to the amount she invests.

c. The money the investor receives deducted by the amount she invests.

d. The money the investor receives divided by the amount she invests.

25. The rate of return on a security is the interest rate that equates

a. The PV (present value) of its expected future cash flows with the current price.

b. The FV (future value) of its expected present cash flows with the current price.

c. The PV of an annuity of its expected future cash flows with the current price.

d. The FV of an annuity of its expected present cash flows with the current price.

26. Interest or payment on bonds are typically paid

a. Each month

b. Each six-month

c. Each year

d. When the company wishes to pay

27. Carstairs, Inc. issued a $1,000, 25 year bond 5 years ago at a 11% interest. Companies bonds yield 8% today. What should Carstair’s bond sell for now?

a. $1,000.00

b. $1,296.90

c. $1,791.72

d. $2,385.51

28. The Looney Company issued a 25-year bond 5 years ago with a face value of $1,000. The bond pays interest semiannually at a 10% annual rate.

What is the bond’s price today if the interest rate on comparable new issues is 10%? (round to the next whole dollar)

a. $969

b. $1,000

c. $1,198

d. Cannot determined, need more information

29. A convertible bond is exchangeable for a _______ number of shares of the issuing company’s stock at the bondholders’ discretion.

a. Fixed

b. Variable (depends on the company’s management)

c. Variable (depends on the market price of the bond)

d. Semi-fixed

Chapter 8 – The Valuation and Characteristics of Stock

30. The return on an investment in common stock can be in a form of

a. Investors receive dividends

b. The price investors eventually sell it

c. Both are correct

d. None is correct.

31. A stock will pay a dividend of $2 next year and $3.50 the year after. By then the CS will be selling for $75. The most price the stock investor should be willing to pay for a share of CS today assume the current returns of similar stock is 12% will be

a. $71.88

b. $64.37

c. $57.96

d. $75.00

32.

The stock of Sedly Inc. is expected to pay the following dividends:

Year

1

2

3

4

Dividend

2.25

3.5

1.75

2

At the end of the fourth year its value is expected to be $37.50. What should Sedly sell for today if the return on stocks of similar risk is 10%?

a. $31.15

b. $32.20

c. $33.23

d. $37.50

33. An investor who purchases a share of preferred stock receives a _______ dividend forever.

a. Constant

b. Fixed percentage of increase each year as indicated in the contract

c. Fixed percentage of decrease each year as indicated in the contract

d. Will never receive dividend

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