please show calculations/workings

4. The stated (nominal) interest rate that a bank charges on its home loans is 12.0% and the

effective annual interest rate has been computed as 12.55%. Based on this information,

interest is most likely being compounded on a:

a) Semi-annual basis.

b) Quarterly basis.

c) Monthly basis.

d) Daily basis.

5. Your friend is considering investing $5,000 at the end of every quarter in a bank account

paying 8% per annum. The first contribution will be made at the end of the first quarter. If

interest is compounded monthly, the total amount she will have accumulated at the end of ten

years is closest to:

a) $228,338.

b) $289,731.

c) $302,010.

d) $302,886.

6. Banks A, B and C offer the following interest rates on one-year bank deposits.

Bank A: 7.9% p.a. compounded monthly.

Bank B: 8.0% p.a. compounded quarterly.

Bank C: 8.1% p.a. compounded semi-annually.

The best interest rate is offered by:

a) Bank A.

b) Bank B.

c) Bank C.

d) The three banks offer equally attractive interest rates.

7. You are thinking about buying a rare collectible that costs $50,000. The dealer is proposing

the following deal. She will lend you the money and you will repay the loan by making the

same payment every two years for the next 20 years. If the interest rate is 4% p.a.

compounded annually, the amount you will have to pay every two years is closest to:

a) $3,679.

b) $5,153.

c) $6,165.

d) $7,505.

8. BLB Ltd has just issued a coupon growth bond with the following terms. Each bonds face

value is $1,000 and the bonds will mature in 5 years time. Coupons will be paid on an annual

basis at the end of each year. The first years coupon will be $100 which will then grow at an

annual rate of 10% until the bonds mature. If the bonds yield to maturity is 8% per annum, its

price today should be closest to:

a) $972.

b) $1,080.

c) $1,161.

d) $1,275.

9. Consider a five-year bond with a face value of $1,000 paying annual coupons at a rate of 12%

which has a current yield to maturity of 10%. If all interest rates remain unchanged, one year

from today the price of this bond:

a) Will be higher.

b) Will be lower.

c) Will be the same.

d) Cannot be determined without additional information.

10. Your favorite aunty has finally agreed to contribute towards funding your retirement.

Specifically, she will start with a contribution of $6,000 today (that is, end of year 0) but this

amount will then decline at a constant rate of 3% p.a. over the foreseeable future. If the

interest rate appropriate for valuing your auntys contribution is 12% p.a. its present value

today is closest to:

a) $38,800.

b) $44,800.

c) $56,000.

d) $70,667.

11. The earnings and dividends of XYX Ltd are expected to grow at a rate of 5%, 10% and 15%

p.a. during years 1 through 3 respectively. After that, the earnings and dividends are expected

to stabilize to a long-run growth rate of 5% p.a. forever. The companys current dividend per

share is $1.50 and the required rate of return on the stock is 12% p.a. Based on this

information, the current price should be closest to:

a) $21.27.

b) $25.48.

c) $28.07.

d) $29.89.

12. DBD Ltds current dividend and price per share are $1.80 and $10.00 respectively. Market

analysts expect the dividend per share to grow at a constant annual rate over the foreseeable

future. If the expected return on this stock is 15% per annum, the constant annual growth rate

implied by this information is closest to:

a) 3.0%.

b) 2.5%.

c) 2.5%.

d) 3.0%.

13. Market analysts expect the earnings per share of JJC Ltd to be $3.00 next year. The company

has typically retained 60% of its earnings and this policy is expected to continue in the

foreseeable future. The return required by investors on companies in JJCs risk class is 10%

p.a. If the companys earnings and dividends are expected to grow at a constant rate of 4%

p.a., the current share price is closest to:

a) $20.00.

b) $20.80.

c) $30.00.

d) $31.80.

14. You have just settled a lawsuit in your favor and you will be receiving semi-annual payments

of $25,000 over the next ten years. The first payment will occur six months from today. You

plan on investing these payments and you expect to earn a return of 6% p.a. with the returns

compounded monthly. The present value of this investment is closest to:

a) $329,520.

b) $368,004.

c) $370,642.

d) $371,937.