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Questions and Answers of Finance

A $10 000, 7.5% bond with quarterly coupons, redeemable at par on October 15, 2028, was purchased on May 5, 2016, at 98.75. What is the approximate yield rate?
What is the approximate yield realized if the bond in Question 17 was sold on August 7, 2021, at 92? In Question 17 A $10 000, 7.5% bond with quarterly coupons, redeemable at par on October 15, 2028,
A 6.5% bond of $50 000 with interest payable quarterly is to be redeemable at par in 12 years.(a) What is the purchase price to yield 8% com- pounded quarterly?(b) What is the book value after 9
A $10 000, 6% bond with semi-annual coupons is redeemable at par. What is the purchase price to yield 7.5% compounded semi- annually(a) 9 years before maturity?(b) 15 years before maturity?
A $5000, 14.5% bond with semi-annual coupons redeemable at par on August 1, 2026, was purchased on March 5, 2015, at 95.5. What was the approximate yield rate?
To provide for the purchase of heavy construction equipment estimated to cost $110 000, Valmar Construction is paying equal sums of money at the end of every six months for five years into a sinking
Alpha Corporation is depositing equal sums of money at the beginning of every three months into a sinking fund to redeem a $65 000 promissory note due eight years from now. Interest earned by the
Alpha Corporation is depositing equal sums of money at the beginning of every three months into a sinking fund to redeem a $65 000 promissory note due eight years from now. Interest earned by the
The municipality of Kirkfield borrowed $100 000 to build a recreation centre. The debt principal is to be repaid in eight years, and interest at 13.75% compounded annually is to be paid annually. To
The Harrow Board of Education financed the acquisition of a building site through a $300 000 long-term promissory note due in 15 years. Interest on the promissory note is 9.25% compounded
Northern Flying Service is preparing to buy an aircraft estimated to cost $60 000 by making equal payments at the end of every three months into a sinking fund for five years. Interest earned by the
A sinking fund of $10 000 is to be created by equal annual payments at the beginning of each year for seven years. Interest earned by the fund is 7.5% compounded annually. (a) Compute the annual
Joe Ngosa bought a retirement fund for $150 000. Beginning 25 years from the date of purchase, he will receive payments of $35 000 at the beginning of every 6 months. Interest earned by the fund is
The town of Kildare bought firefighting equipment for $96 000. The financing agreement provides for annual interest payments and equal payments into a sinking fund for 10 years. After 10 years the
A $25 000, 9% bond with interest payable quarterly is redeemable at par in six years. What is the purchase price to yield 8.25% compounded annually?
A $1000, 9.5% bond with semi-annual coupons redeemable at par on March 1, 2022, was purchased on September 19, 2013, to yield 7% compounded semi-annually. What was the purchase price?
Four $5000 7% bonds with semi-annual coupons are bought seven years before maturity to yield 6% compounded semi-annually. Find the premium or discount and the purchase price if the bonds are
Nine $1000 8% bonds with interest payable semi-annually and redeemable at par are purchased 10 years before maturity. Find the premium or discount and the purchase price if the bonds are bought to
A $100 000, 5% bond with interest payable semi-annually redeemable at par on July 15, 2027, was purchased on April 18, 2016, to yield 7% compounded semi-annually. Determine(a) The premium or
Four $10 000 bonds bearing interest at 6% payable quarterly and redeemable at par on September 1, 2024, were purchased on January 23, 2012, to yield 5% compounded quarterly. Determine(a) The premium
A $5000, 8% bond with semi-annual coupons redeemable at par in 10 years is purchased to yield 10% compounded semi-annually. What is the purchase price?
A $10 000, 10% bond with quarterly coupons redeemable at par in 15 years is purchased to yield 11% compounded quarterly. Determine the purchase price of the bond.
Cottingham Pies made semi-annual payments into a sinking fund for 10 years. If the fund had a balance of $100 000 after 10 years and interest is 11% compounded semi-annually, what was the accumulated
A fund of $165 000 is to be accumulated in 6 years by making equal payments at the beginning of each month. If interest is 7.5% compounded monthly, how much interest is earned by the fund in the 20th
Gillian Armes invested $10 000 in an income fund at 13% compounded semi- annually for 20 years. After 20 years, she is to receive semi-annual payments of $10 000 at the end of every 6-month period
A company financed a plant expansion of $750 000 at 9% compounded annually. The financing agreement requires annual payments of interest and the funding of the debt through equal annual payments for
Annual sinking fund payments made at the beginning of every year for six years, earning 11.5% compounded annually, amount to $25 000 at the end of six years. Construct a sinking fund schedule showing
What is the purchase price of a $1000, 7.5% bond with semi-annual coupons redeemable at par in 10 years if the bond is bought to yield 6% compounded semi-annually?
A $5000, 8% bond with semi-annual coupons redeemable at par is bought six years before maturity to yield 6.5% compounded semi-annually. Determine the premium or discount.
A $20 000, 10% bond with semi-annual coupons redeemable at par March 1, 2021, was purchased on November 15, 2014, to yield 9% compounded semi-annually. What was the purchase price of the bond?
A $5000, 7% bond with semi-annual coupons redeemable at par on December 15, 2026, was purchased on November 9, 2015, to yield 8.5% compounded semi- annually. Determine the cash price.
A $5000, 5.5% bond with semi-annual coupons redeemable at par is bought four years before maturity to yield 7% compounded semi-annually. Construct a bond schedule.
A $100 000, 13% bond with semi-annual interest payments redeemable at par on July 15, 2022, is bought on September 10, 2015, at 102.625. What was the approximate yield rate?
A $25 000, 6% bond with semi-annual coupons redeemable at par in 20 years is purchased to yield 8% compounded semi-annually. Determine the gain or loss if the bond is sold 7 years after the date of
A $10 000, 12% bond with semi-annual coupons redeemable at par on December 1, 2024, was purchased on July 20, 2013, at 93.875. Compute the approximate yield rate.
A $2000 bond with annual coupons is redeemable at par in five years. If the first coupon is $400, and subsequent annual coupons are worth 75% of the previous year’s coupon, find the purchase price
An issue of bonds, redeemable at par in n years, is to bear coupons at 9% com- pounded semi-annually. An investor offers to buy the entire issue at a premium of 15%. At the same time, the investor
Scan Soft Development Company is developing a new process to manufacture optical disks. The development costs were higher than expected, so Scan Soft required an immediate cash inflow of $5 200 000.
The D Company must make a choice between two investment alternatives. Alternative 1 will return the company $20 000 at the end of three years and $60 000 at the end of six years. Alternative 2 will
When Peter decided to sell his farm, he received two offers. If he accepts the first offer, he would receive $250 000 now, $750 000 one year from now, and $500 000 two years from now. If he accepts
A warehouse can be purchased for $90 000. After 20 years the property will have a residual value of $30 000. Alternatively, the warehouse can be leased for 20 years at an annual rent of $10 000
A car costs $9500. Alternatively, the car can be leased for three years by making payments of $240 at the beginning of each month and then bought at the end of the lease for $4750. If interest is 9%
The B Company has a policy of requiring a rate of return on investment of 16%. Two investment alternatives are available but the company may choose only one. Alternative 1 offers a return of $50 000
An obligation can be settled by making a payment of $10 000 now and a final payment of $20 000 in five years. Alternatively, the obligation can be settled by payments of $1500 at the end of every
An unavoidable cost may be met by outlays of $10 000 now and $2000 at the end of every six months for seven years or by making monthly payments of $500 in advance for seven years. Interest is 7%
A company must purchase new equipment costing $2000. The company can pay cash on the basis of the purchase price or make payments of $108 at the end of each month for 24 months. Interest is 7.8%
For less than a dollar a day, Jerri can join a fitness club. She would have to pay $24.99 at the end of each month for 30 months, or she can pay a lump sum of $549 at the beginning. Interest is 16.2%
A contract offers $25 000 immediately and $50 000 in 5 years or $10 000 at the end of each year for 10 years. If money is worth 6%, which offer is preferable?
A professional sports contract offers $400 000 per year paid at the end of each of six years or $100 000 paid now, $200 000 paid at the end of each of the second and third years, and $800 000 paid at
Bruce and Carol want to sell their business. They have received two offers. If they accept Offer A, they will receive $15 000 immediately and $20 000 in three years. If they accept Offer B, they will
A contract is estimated to yield net returns of $3500 quarterly for seven years. To secure the contract, an immediate outlay of $50 000 and a further outlay of $30 000 three years from now are
The owner of a business is presented with two alternative projects. The first project involves the investment of $5000 now. In return, the business will receive a payment of $8000 in 4 years and a
Northern Track is developing a special vehicle for Arctic exploration. The development requires investments of $60 000, $50 000, and $40 000 for the next 3 years, respectively. Net returns beginning
The Kellogg Company has to make a decision about expanding its production facilities. Research indicates that the desired expansion would require an immediate outlay of $60 000 and an outlay of a
Agate Marketing Inc. intends to distribute a new product. It is expected to produce net returns of $15 000 per year for the first four years and $10 000 per year for the following three years. The
A company is considering a project that will require a cost outlay of $15 000 per year for four years. At the end of the project the salvage value will be $10 000. The project will yield returns of
Using an 8% interest rate, calculate the accumulated value if Jason invests half of his winnings at the end of every month for 15 years. Assume interest is compounded quarterly.
If a lottery offers a one-time payment of $1 million immediately or payments of $100 000 at the end of each year for 20 years which offer is preferable if interest is 10% per annum?
Replacing old equipment at an immediate cost of $50 000 and an additional outlay of $30000 6 years from now will result in savings of $3000 per quarter for 12 years. The required rate of return is
A business has two investment choices. Alternative 1 requires an immediate outlay of $2000 and offers a return of $7000 after seven years. Alternative 2 requires an immediate outlay of $1800 in
Suppose you are offered two investment alternatives. If you choose Alternative 1, you will have to make an immediate outlay of $9000. In return, you will receive $500 at the end of every 3 months for
You have two investment alternatives. Alternative 1 requires an immediate outlay of $8000. In return, you will receive $900 at the end of every quarter for the next three years. Alternative 2
Your old car costs you $600 per month in gas and repairs. If you replace it, you could sell the old car immediately for $4000. To buy a new car that would last five years, you need to pay out $20 000
Demand for a product manufactured by Eagle Manufacturing is expected to be 15 000 units per year during the next 10 years. The net return per unit is $2. The manufacturing process requires the
Magnum Electronics Company expects a demand of 20 000 units per year for a special-purpose component during the next six years. Net return per unit is $4. To produce the component, Magnum must buy a
Teck Engineering normally expects a rate of return of 12% on investments. Two projects are available but only one can be chosen. Project A requires an immediate investment of $4000. In return, a
The proposed expansion of CIV Electronics’ plant facilities requires the immediate outlay of $100 000. Expected net returns are Year 1: Nil Year 2: $30 000 Year 3: $40 000 Year 4: $60 000 Year 5:
The introduction of a new product requires an initial outlay of $60 000. The anticipated net returns from the marketing of the product are expected to be $12 000 per year for 10 years. Find the rate
Your firm is considering introducing a new product for which net returns are expected to be Year 1 to Year 3, inclusive: ………………. $2000 per year Year 4 to Year 8, inclusive:
A project requiring an immediate investment of $150 000 and a further outlay of $40 000 after four years have a residual value of $30 000 after nine years. The project yields a negative net return of
You are thinking of starting an energy drink business that requires an initial investment of $16 000 and a major replacement of equipment after 10 years, amounting to $8000. From competitive
The Blue Sky Ski Resort plans to install a new chair lift. Construction is estimated to require an immediate outlay of $220 000. The life of the lift is estimated to be 15 years, with a salvage value
The purchase of a loader is needed to enable the expansion into Windsor. There are two options to consider. Money is worth 10% compounded annually Loader A has a purchase cost of $150 000. Net cash
To travel to her new job, Dharshana required a car. Reading the newspaper, she noticed an ad for an Acura TSX. It was just the vehicle she wanted. The ad quoted both a cash purchase price of $37 500
Wells Inc. has to choose between two investment alternatives. Alternative A will return the company $20 000 after 3 years, $60 000 after 6 years, and $40 000 after 10 years. Alternative B will bring
Compute the rate of return for Question 6. In Question 6 A company is considering a project that will require a cost outlay of $30 000 per year for four years. At the end of the project, the company
Superior Jig Co. has developed a new jig for which it expects net returns as follows. Year 1: …………………………………….. $8000 Years 2 to 6 inclusive: ………………….…. $12
The owner of a sporting goods store is considering remodeling the store to carry a larger inventory. The cost of remodeling and additional inventory is $60 000. The expected increase in net profit is
Out way Ventures evaluates potential investment projects at 20%. Two alternative projects are available. Project A will return the company $5800 per year for eight years. Project B will return the
Project A requires an immediate investment of $8000 and another $6000 in three years. Net returns are $4000 after two years, $12 000 after four years, and $8000 after six years. Project B requires an
Net returns from an investment are estimated to be $13 000 per year for 12 years. The investment involves an immediate outlay of $50 000 and a further outlay of $30 000 after 6 years. The investments
The introduction of a new product requires an immediate outlay of $45 000. Anticipated net returns from the marketing of the product are expected to be $12 500 per year for 10 years. What is the rate
Games Inc. has developed a new electronic game and compiled the following product information.Should the product be marketed if the company requires a return of 16%?
Farmer Jones wants to convert his farm into a golf course. He asked you to determine his rate of return on the basis of the following estimates: development cost for each of the first 3 years, $80
A piece of property may be acquired by making an immediate payment of $25 000 and payments of $37 500 and $50 000 three and 5 years from now, respectively. Alternatively, the property may be
An investor has two investment alternatives. If he chooses Alternative 1, he will have to make an immediate outlay of $7000 and will receive $500 every three months for the next nine years. If he
Replacing old equipment at an immediate cost of $65 000 and $40 000 5 years from now will result in a savings of $8000 semi-annually for 10 years. At 14% compounded annually, should the old equipment
A real estate development project requires annual outlays of $75 000 for 8 years. Net cash inflows beginning in Year 9 are expected to be $250 000 per year for 15 years. If the developer requires a
A company is considering a project that will require a cost outlay of $30 000 per year for four years. At the end of the project, the company expects to salvage the physical assets for $30 000. The
An investment requires an initial outlay of $45 000. Net returns are estimated to be $14 000 per year for eight years. Determine the rate of return.
A project requires an initial outlay of $10 000 and promises net returns of $2000 per year over a 12-year period. If the project has a residual value of $4000 after 12 years, what is the rate of
Compute the rate of return for Question 5. In Question 5 A real estate development project requires annual outlays of $75 000 for 8 years. Net cash inflows beginning in Year 9 are expected to be $250
Opportunities Inc. requires a minimum rate of return of 15% on investment proposals. Two proposals are under consideration, but only one may be chosen. Alternative A offers a net return of $2500 per
A natural resources development project requires an immediate outlay of $100 000, and $50000 at the end of each year for 4 years. Net returns are nil for the first 2 years and $60000 per year
An investment of $100 000 yields annual net returns of $20 000 for 10 years If the residual value of the investment after 10 years is $30 000, what is the rate of return on the investment (correct to
A telephone system with a disposable value of $1200 after five years can be purchased for $6600. Alternatively, a leasing agreement is available that requires an immediate payment of $1500, plus
A choice has to be made between two investment proposals. Proposal A requires an immediate outlay of $60 000 and a further outlay of $40 000 after 3 years. Net returns are $20 000 per year for 10
Introducing a new product requires an immediate investment in plant facilities of $180 000 with a disposal value of $45 000 after seven years. The facilities will require additional capital outlays
The owners of a vegetable processing plant can buy a new conveyor system for $85 000. They estimate they can save $17 000 per year on labour and maintenance costs. They can purchase the same conveyor
Cheese Works owns four dairies in your province and has planned upgrades for all locations. The owners are considering four projects, each of which is independent of the other three projects. The

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