Multiple choice question.. Challenging

18. Lisa Simpson, now age 20, wants to retire with $1,500,000 in her Roth IRA. She plans to achieve this goal by depositing $3,000 at the beginning of each year at an expected annual rate of 8%. How many deposits must Lisa make in order to reach her goal? Round to the nearest deposit.

A. 45 B. 46 C. 47 D. 44 E. 48

19. Which of the following statements is CORRECT? A. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited. B. Firms in highly competitive industries are more likely to consciously exercise "social responsibility" than are firms in oligopolistic industries. C. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment. D. A good goal for a firm's management is the maximization of expected EPS. E. Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.

20. Imagine Homer Simpson actually invested the $50,000 he earned providing Mr. Burns entertainment 10 years ago at a 6% compounded annually and starts investing an additional $2,000 a year today and the end of each year for 15 years (16 total annual deposits) at the same 6% annual rate. How much money will Homer have 15 years from today? A. $299,999 B. $265,939 C. $278,814 D. $269,019

21. Determine the yield-to-call (to nearest 0.1 of a percent) of an LTV bond with a 14 percent annual coupon rate, that pays interest semiannually. The bond can be called in 7 years, has a call price of $1140, and is currently selling for $1154. A. 16.2% B. 14% C. 12.0% D. 13.7%

22. Kop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 4.70%. The default risk premium for Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 1.40% versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*? A. 2.72% B. 2.80% C. 2.91% D. 3.16% E. 2.35%

23. Which answer is FALSE regarding bond prices and interest rates? A. The price of a bond is the present value of the coupon payments and the face value. B. Bond prices and interest rates move in opposite directions. C. Interest rate risk can be described as the risk that changes in market interest rates will cause fluctuations in the bonds price. D. The prices of short-term bonds display greater price sensitivity to interest rate changes than do the prices of long-term bonds.

24. Bavarian Sausage just issued a 10 year 12% annual coupon rate bond. The face value of the bond is $1,000 and the bond makes semiannual coupon payments. If the bond is trading at $867.25, what is the bonds yield to maturity? A. 14.56% B. 10.86% C. 12.00% D. 12.37%

25. You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of: A. A primary market transaction. B. A futures market transaction. C. A money market transaction. D. A secondary market transaction. E. An over-the-counter market transaction.

26. If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a 1-year T-bond? A. It is impossible to tell without knowing the coupon rates of the bonds. B. The yield on the 10-year bond is less than the yield on a 1-year bond. C. The yield on a 10-year bond will always be higher than the yield on a 1-year bond because of maturity risk premiums. D. The yields on the two bonds are equal.