Question

1) The future value of $200 received today and deposited at 8 percent for three years is ________.

A.$248

B. $200

C.$158

D.$252

2) The riskiness of publicly traded bond issues is rated by independent agencies. According to Moody’s rating system, an Aaa bond and a Caa bond are ________ and________ respectively.

A. speculative; investment grade

B. prime quality; medium grade

C. medium grade; lowest grade

D. prime quality; speculative

3) A(n) ________ is a paid individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture.

A. bond rating agency

B. bond issuer

C. investment banker

D. trustee

4) The future value of an ordinary annuity of $2,000 each year for 10 years, deposited at 12 percent, is ________.

A. $11,300

B. $20,000

C. $39,310

D. $35,098

5) What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?

6) The future value of an annuity of $1,000 each quarter for 10 years, deposited at 12 percent compounded quarterly is ________.

A.$11,200

B.$17,549

C.$75,401

D.$93,049

7) ________ means that subsequent creditors agree to wait until all claims of the are senior debt satisfied before having their claims satisfied.

A. Security interest

B. Bond indenture

C. Subordination

D. Sinking fund requirement

8) The return expected from an asset is fully defined by its ________.

A. discount rate

B. cash flow and timing

C. risk and cash flow

D. beta

9)The present value of a $25,000 perpetuity at a 14 percent discount rate is ________.

A. $285,000

B. $219,298

C. $178,571

D.$350,000

10) Review Question? 6-12 and 6-13(LO6-6) Why is it important for financial managers to understand the valuation process? What are the three key inputs to the valuation process?

11) The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately ________.

A.12%

B.5%

C.7%

D.10%

12) $1,200 is received at the beginning of year 1, $2,200 is received at the beginning of year 2, and $3,300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is ________.

A. $ 6,700

B.$12,510

C. $ 8,142

D. $17,072

13) The term structure of interest rates is the relationship between ________.

A. the maturity and rate of return for bonds with similar level of risk

B. the general expectation of inflation and nominal rate of return for bonds

C. the present value of principal and coupon rate of the bonds

D. the general expectation of inflation and real rate of return for bonds

14) The price of a bond with a fixed coupon rate and the required return have a relationship that is best described as ________.

A. direct

B. inverse

C. constant

D. perfect positive correlation

15) The present value of $100 received at the end of year 1, $200 received at the end of year 2, and $300 received at the end of year 3, assuming an opportunity cost of 13 percent, is________.

A. $ 453

B.$ 416

C.$1,181

D.$ 500

16) If a United States Savings bond can be purchased for $14.60 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond

A. 9 percent

B. 8 percent

C. 7 percent

D. 6 percent

17) The ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity.

A. put

B. call

C. swap

D. conversion

18) A type of long term financing used by both corporations and government entities is ________.

A. retained earnings

B. common stocks

C. bonds

D. preferred stocks

19) ________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds.

A. Nominal

B. Inflationary

C. Risk free

D. Real

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