20.How much would you pay today for a bond that has a face value of $1,000, and annual coupon of $91 and a maturity of 9 years? (=what is the price of the bond?)

The annual interest rate is 4.84%?

21.Assume you buy a bond with the following features

Bond maturity = 4

Coupon Rate = 4%

Face Value = $1,000

Annual Coupons

When you buy the bond the market interest rate = 4.57%

Immediately after you buy the bond the interest rate changes to 5.93%

What is the "reinvestment" effect in year 3 ?

24.You plan to purchase a house in 17 months for $479,855

How much would you have to invest today in an account that earns 3.85% APR (compounded monthly), to exactly have enough to pay for the house?

25.You invest $2,950 each month, starting next month, for 7 months

If your investments earn 3.44% APR, compounded monthly, how much would you have in the account in 7 months?

26.You plan to give your child a new car for her graduation in 19 months.

The car costs $27,519

How much must you invest today in an account that earns 2.58% APR (compounded monthly) to exactly pay for the car?

31.When interest rates rise bond prices

Group of answer choices

Fall

Rise

32.In a typical bond arrangement, a firm issues a bond to the investing public.

In this arrangement who is the borrower and who is the lender?

Group of answer choices

The firm is the borrower AND the investor is the lender

The firm is the lender AND the investor is the borrower

33.If the YTM stays constant, the one periodCurrent Yieldand the one periodExpected Capital Gains/Losson the bond add-up to the bond's _____________

Group of answer choices

par value

current price

coupon rate

yield to maturity

34.There are actually many interest rates in the economy. However, we can talk about THE interest rate because

Group of answer choices

The interest rate on long-term government bonds is the key interest rate to follow.

Interest rates tend to move together, that is, when one interest rate increases all of them tend to increase and when one interest rate decreases all of them tend to decrease.

The interest rate on short-term government bonds is the key interest rate to follow.

35.Illiquid assets tend to be

Group of answer choices

Heterogeneous with high information costs

Homogeneous with low information costs

Homogeneous with high information costs

Heterogeneous with low information costs

36.When investors in a country become more patient there will be pressure on interest rates in that country

Group of answer choices

to be low.

to be high.

to vary more from high to low.

37.Where you save (i.e., the assets you invest in) depends on

Group of answer choices

the risk characteristics of the asset.

your risk aversion.

your risk aversion AND the risk characteristics of the asset.

38.Why dohouseholds save?

Group of answer choices

For future consumption AND as a precaution

For future consumption AND as a precaution AND for speculation

For future consumption

39.LO2

Which component of financing are income tax deductible?

Group of answer choices

preferred dividends

ordinary dividends

interest on debt

40.LO2

How are NPV and maximizing shareholder value related?

Group of answer choices

The firm can maximize stockholder value by maximizing expected future cash-flows.

The firm can maximize stockholder value by accepting projects with NPV's greater than or equal to zero.

The firm can maximize shareholder value by maximizing firm profits.

The firm can maximize shareholder value by maximizing market share.

41.LO2

How do you estimate the cost of debt?

Group of answer choices

Use the expectations hypothesis of the term structure.

Use the cost of retained earnings.

Add 300 to 500 basis points to the long term treasury bond rate.

Use the interest rate on its bank loans AND/OR use the YTM on the firms long term bonds.

42.If Congress passes a law such that longterm Treasury bonds are exempt from income tax (that is, they are not taxed) then, all else equal, one would expect

Group of answer choices

Interest rates at every maturity to fall

Interest rates at every maturity to rise

The term structure to become flatter (less slope)

The term structure to become steeper (greater slope)

43.Based on theExpectations Hypothesisof the term structure of interest rates, if theslopeof the term structuredecreases, this is most likely because

Group of answer choices

some investors have become more risk-averse while other investors have become less risk-averse.

investors as a whole anticipate lower future interest rates.

Long-term bonds have become more liquid

investors as a whole anticipate higherinflation in the future.

44.If a firm has a successful marketing campaign introducing a new product, there will be pressure on the firm's WACC to

Group of answer choices

increase

decrease

not change

45.If the Federal Reserve Bank (the "FED") wants to stimulate the economy it will lower interest rates by _____________ Treasury Bonds.The FED's actions encourage firms to invest more by _________ firm's WACCs.

Group of answer choices

No answer text provided.

A. buying; decreasing

No answer text provided.

46.Your firm currently uses machine A to produce its product. Machine A generates a cash-flow of $1,000 per unit and will last for 4 more years from today. Machine A is fully paid for and has no salvage value.

You are considering replacing machine A with a new machine, Machine B.Machine B costs $20,000 and will generate $1,500 per unit and will also last for 4 years from today.

You decide to use NPV to determine whether to switch to Machine B. If you decide to switch to Machine B, you will stop using machine A.

In your NPV calculation for Machine B, for the cash-flows, you should use

Group of answer choices

$500

$2,500

$1,000

$1,500

47.You are analyzing whether to use a new machine in your production process. You hire an engineer to analyze the pros and cons of getting the new machine.The cost of the engineer's analysis is $20,000. The engineer's analysis provides you with the following information.

• Purchase price: $30,000
• Expected life: 48 months
• Monthly cash-flow: $2,000 (starting next month)
• Discount Rate: 4% APR (monthly compounding)

In your NPV calculation, your initial costs (CF0) should be

Group of answer choices

$50,000 ( = $30,000+$20,000)

$10,000 (= $30,000 - $20,000)

$30,000

48,When a firm's WACC increase, the IRR on its projects will

Group of answer choices

decrease

not change

also increase

49.When a firm's WACC increase, thepayback periodon its projects will

Group of answer choices

increase

decrease

not change

50.You own a portfolio of bonds that consists of short-maturity and long-maturity bonds. If you expect interest rates to RISE you should sell your ___________ bonds and buy more __________ to ___________

Group of answer choices

short-maturity bonds;long-maturity bonds;maximize gains

short-maturity bonds;long-maturity bonds;minimize losses

long-maturity bonds;short-maturity bonds;maximize gains

long-maturity bonds;short-maturity bonds;minimize losses