Math in Finance I

11. Fifty years ago, an investor bought a share of stock for $10. The stock has paid no dividends during this period, yet it has returned 20%, compounded annually, over the past 50 years. If this is true, the share price is now closest to:

A. $4,550

B. $45,502

C. $91,004

12. How much must be invested today, at 8% interest, to accumulate enough to retire the $10,000 debt due seven years from today? The amount that must be invested today is closest to:

A. $5,835

B. $6,123

C. $8,794

13. An investor will receive an annuity of $4,000 a year for ten years. The first payment is to be received five years from today. At a 9% discount rate, this annuitys worth today is closest to:

A. $16,684

B. $18,186

C. $25,671

14. If $1,000 is invested today and $1,000 is invested at the beginning of each of the next three years at 12% interest (compounded annually), the amount an investor will have at the end of the fourth year will be closest to:

A. $4,779

B. $5,353

C. $6,792

15. A bank quotes a stated annual interest rate of 4.00%. If that rate is equal to an effective annual rate of 4.08%, then the bank is compounding interest:

A. daily

B. quarterly

C. semi-annually

16. Which of the following statements least accurately describes the IRR and NPV methods?

A. The discount rate that gives an investment an NPV of zero is the investments IRR

B. If the NPV and IRR methods give conflicting decisions for mutually exclusive projects, the IRR decision should be used to select the project

C. The NPV method assumes that a projects cash flows will be reinvested at the cost of capital, while the

IRR method assumes they will be reinvested at the IRR

17. What is the holding period yield for a T-bill that is selling for $99,000 if it has a face value of

$100,000 and 95 days remaining until maturity?

A. 1.01%

B. 2.03%

C. 3.79%

18. What is the money market yield for a T-bill that is selling for $99,000 if it has a face value of

$100,000 and 95 days remaining until maturity?

A. 3.79%

B. 3.83%

C. 3.90%

19. Given a 300-day holding period yield (HPY) of 7%, the effective annual yield (EAY) is closest to:

A. 8.4%

B. 8.5%

C. 8.6%

20. The net present value NPV of an investment is equal to the sum of the expected cash flows discounted at the:

A. internal rate of return

B. risk-free rate

C. opportunity cost of capital