Dilbert Enterprises has issued $1 billion of bonds with a sinking fund provision. With 5 years left until maturity, Dilbert Enterprises does not retire bonds as provided for in the sinking fund provision. What is the consequence of this action on the company?

Nothing as long as it still pays interest on the bonds and pays them off at maturity.

The bonds are in default as a result of violating the sinking fund covenant.

It depends on the payment history of Dilbert Enterprises.

None of the above.

A bond that currently trades at a premium will see its price do what until maturity (assuming nothing else changes except the passage of time)?

Rise to par

Fall to par

Remain the same since prevailing interest rates have not changed

None of the above

You put $2,000 in a CD paying 6% for 10 years. How much money do you have at the end of 10 years?

What is the Current Yield on a 10-year bond with 9% annual coupon that is selling at $887? (Assume par value = $1,000 as we usually do in this class)?

9.15%

9.91%

10.15%

10.91%

You are considering purchasing a 10% coupon bond that matures in 11 years. YTM on similar bonds with like risk characteristics currently yield 11%. What price should you consider paying for this bond?

You put $10,000 in a company 401K each year. The company matches this investment. You expect to earn 8% each year on this money and you work for the company for 25 years before you retire. How much money do you have at retirement?

You have decided that you need $3 million to retire in 35 years. How much money should you save each month if you can earn 9% on this money?

You purchase a rental house for $100,000 with 20% down. The rental income pays for all expenses and the mortgage for the entire time you own it. You sell it 18 years after you purchase it. Assuming real estate prices increase 3.5% per year, at what price did you sell this rental house?

Assuming you owe $45,000 on this house when you sell it, what is your gain on the house above?

What is your rate of return on your equity investment given this gain?

Your company is evaluating a project. The project is expected to cost $500,000 and generate the following cash flows: 100,000 in year one, 300,000 in years two and three, & -50,000 in year four (end of life). If your cost of capital (WACC) is 10%, should you undertake this project?

Yes

No

Not enough information

What is the value of a bond with 10 years to maturity and a 10% coupon rate if current interest rates for similar bonds are currently 13%?

What is the value of a bond with 10 years to maturity and a 10% coupon rate if current interest rates for similar bonds are currently 7%?

At maturity a bonds value always equals its par value.

True

False

A normal yield curve is?

Sloping upward

Flat

Sloping downward

Given what you know about intrinsic value, please calculate the intrinsic value of one ounce of gold.

The shape of the yield curve is drive by

Expectations about future inflation

Expectations about future cash flow

Perceptions about the relative risk of securities with different maturities

All of the above

A & C only.

Meacham Enterprises' bonds currently sell for $1,280 and have a par value of $1,000. They pay a $135 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,050. What is their yield to call (YTC)?

What is the YTM in #89?

What is the Current Yield in #89?

Based upon your answers to question 89-91, do you think the corporation will call this bond?

Yes

No

There are several advantages of a sole proprietorship business organization. What is its chief disadvantage?

It is expensive to form

Unlimited liability

It is heavily regulated

There are several advantages of a partnership business organization. What is its chief disadvantage?

It is expensive to form

Unlimited liability

It is heavily regulated

Double taxation

There are several advantages of a corporate business organization. What is its chief disadvantage?

It is expensive to form

Unlimited liability

It is heavily regulated

Double taxation

Figure 1-3 in the text illustrates that the Federal budget deficit reached a peak in 2009. Why might this be?

Obamacare.

A weak economy resulted in lower tax revenues for the government.

Poor fiscal policy.

Poor monetary policy.

Interest rates have steadily fallen since 1980. How might this have affected asset prices in that time frame?

Interest rates have nothing to do with asset prices.

Declining rates likely helped inflate asset prices.

Declining rates likely slowed the rate of asset price increases.

None of the above.

Money markets are the markets for?

Markets for securities with maturities less than a year.

Markets for securities with maturities more than a year.

Markets for debt securities with maturities less than a year.

Markets for debt securities with maturities less than a year.