FIN 534 Midterm Exam 3

1. Which of the following statements is CORRECT?

2. You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

3. Which of the following statements is CORRECT?

4. A $150,000 loan is to be amortized over 6 years, with annual end-of-year payments. Which of these statements is CORRECT?

5. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

6. Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. If you invest $2,000 in the CD, how much will you have when it matures?

7. Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

8. Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

9. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT?

10. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

11. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment?

12. Which of the following statements is CORRECT?

13. You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

14. Which of the following statements is CORRECT?

15. How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding?

16. Which of the following statements is CORRECT?

17. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT?

18. Which of the following statements is CORRECT?

19. Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows:

20. A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT?

21. Which of the following statements is NOT CORRECT?

22. Which of the following statements is NOT CORRECT?

23. A 15-year bond has an annual coupon rate of 8%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 6%. Which of the following statements is CORRECT?

24. An 8-year Treasury bond has a 10% coupon, and a 10-year Treasury bond has an 8% coupon. Both bonds have the same yield to maturity. If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT?

25. Which of the following statements is CORRECT?

26. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT?

27. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

28. Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

29. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

30. Which of the following statements is CORRECT?