FINANCE HELPP

1. You are considering the purchase of a motorized scooter where the price of the scooter is based upon the miles per gallon (mpg) of gasoline that the scooter can achieve. That is, the current price of the scooter that you want is $1,000 because the scooter can achieve 100 miles per gallon and the cost per mpg is $10. Right before you are about to purchase the scooter, your best friend requests that you loan him $1,000 for one year. You make the loan in order to be able to buy a 105 mpg scooter at the conclusion of the loan. If you anticipate that the cost per mpg will increase to $11, what rate of interest do you charge your friend? a. 5% b. 10% c. 15% d. 15.5%

2Unsecured bonds that have legal claims inferior to other outstanding bonds are a. debentures. b. mortgage bonds. c. subordinated debentures. d. discount bonds.

3With respect to the company that has issued a callable bond, a. the value of the call increases as the stock price increases. b. the value of the call increases as interest rates increase. c. the value of the call increases as interest rates decrease. d. none of the above.

4With respect to the owner of a putable bond, a. the value of the put increases as interest rates increase. b. the value of the put increases as interest rates decrease. c. the value of the put increases as the value of the stock decreases. d. none of the above.

5You notice that the price of a 4.0% coupon, 12-year Treasury Note is priced at 90:16 in the Wall Street Journal. What is the bonds yield to maturity? a. 2.56% b. 2.565% c. 5.07% d. 5.13%

6 You read in the financial press that a companys Moodys debt rating is one step above junk. What is the rating? a. Ba1 b. BB+ c. Baa3 d. BBB- 7You are trying to find the correct yield spread for a Standard and Poors rated A+, 7-year maturity bond. You find that a 7-year maturity, AA- bonds spread is 65 basis points while that of a 7-year maturity A bonds spread is 80 basis points. Which of the following should be a possibility for the spread of the A+ rated bond? a. 64 basis points b. 70 basis points c. 80 basis points d. both b and c are possible spreads for the bond

8 The relationship between time to maturity and yield to maturity for bonds of equal risk is referred to as a. the term structure of interest rates. b. the forward rate. c. the spot curve. d. the forward curve.

9You find that the yield on a 4-year bond is 10% while that of a 2-year bond is 8%. What should be the yield on a 2-year bond beginning two years from now as predicted by the expectations theory? a. 2.00% b. 12.04% c. 25.25% d. none of the above

10You find that the yield on a 6-year bond is 12% while that of a 4-year bond is 9%. What should be the yield on a 2-year bond beginning four years from now as predicted by the expectations theory? a. 3.00% b. 18.25% c. 39.83% d. none of the above