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An agreement for the sale of securities in which the investment bank guarantees the sale by purchasing the securities from the issuer and then sells the securities in the primary is a(n) ____.

A) best efforts arrangement B) guaranteed issue arrangement C) underwritten arrangement D) private placement E) None of the above

12.

The over-the-counter market is a network of dealers that provides for trading securities not listed on organized exchanges.

A) True B) False

13.

What is the term used to describe an annuity with an infinite life?

A) perpetuity B) infinuity C) infinity due D) There is no special term for an infinite annuity.

14.

Financial Calculator Section The following question(s) may require the use of a financial calculator. Suppose you put $100 into a savings account today, the account pays a simple annual interest rate of 6 percent, but compounded semiannually, and you withdraw $100 after 6 months. What would your ending balance be 20 years after the initial $100 deposit was made?

A) $226.20 B) $115.35 C) $62.91 D) $9.50 E) $3.00

15.

In 1958 the average tuition for one year at an Ivy League school was $1,800. Thirty years later, in 1988, the average cost was $13,700. What was the growth rate in tuition over the 30-year period?

A) 12% B) 9% C) 6% D) 7% E) 8%

16.

A recent advertisement in the financial section of a magazine carried the following claim: "Invest your money with us at 14 percent, compounded annually, and we guarantee to double your money sooner than you imagine." Ignoring taxes, how long would it take to double your money at a simple rate of 14 percent, compounded annually?

A) Approximately 3.5 years B) Approximately 5 years C) Exactly 7 years D) Approximately 10 years E) Exactly 14 years

17.

If you buy a factory for $250,000 and the terms are 20 percent down, the balance to be paid off over 30 years at a 12 percent rate of interest on the unpaid balance, what are the 30 equal annual payments?

A) $20,593 B) $31,036 C) $24,829 D) $50,212 E) $6,667

18.

Why is the present value of an amount to be received (paid) in the future less than the future amount?

A) Deflation causes investors to lose purchasing power when their dollars are invested for greater than one year. B) Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. C) Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. D) Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. E) None of the above is a correct answer.

19.

You want to buy a Nissan 350Z on your 27th birthday. You have priced these cars and found that they currently sell for $30,000. You believe that the price will increase by 5 percent per year until you are ready to buy. You can presently invest to earn 14 percent. If you just turned 20 years old, how much must you invest at the end of each of the next 7 years to be able to purchase the Nissan in 7 years?

A) $4,945.57 B) $3,933.93 C) $7,714.72 D) $3,450.82 E) $6,030.43

20.

Financial Calculator Section The following question(s) may require the use of a financial calculator. Your father, who is 60, plans to retire in 2 years, and he expects to live independently for 3 years. Suppose your father wants to have a real income of $40,000 in today's dollars in each year after he retires. His retirement income will start the day he retires, 2 years from today, and he will receive a total of 3 retirement payments. Inflation is expected to be constant at 5 percent. Your father has $100,000 in savings now, and he can earn 8 percent on savings now and in the future. How much must he save each year, starting today, to meet his retirement goals?

A) $1,863 B) $2,034 C) $2,716 D) $5,350 E) $6,102

21.

Which of the following payments (receipts) would probably not be considered an annuity due? Based on your knowledge and using logic, think about the timing of the payments.

A) rent payments associated with a five-year lease B) payments for a magazine subscription for a two-year period where the payments are made annually C) interest payments associated with a corporate bond that was issued today D) annual payments associated with lottery winnings that are paid out as an annuity

22.

Financial Calculator Section The following question(s) may require the use of a financial calculator. You can deposit your savings at the Darlington National Bank, which offers to pay 12.6 percent interest compounded monthly, or at the Bartlett Bank, which will pay interest of 11.5 percent compounded daily. (Assume 365 days in a year.) Which bank offers the higher effective annual rate?

A) Darlington National Bank. B) Bartlett Bank. C) Both banks offer the same effective rate. D) Cannot be determined from the information provided. E) Workable only if the banks use the same compounding period.

23.

In its first year of operations, 1999, the Gourmet Cheese Shoppe had earnings per share (EPS) of $0.26. Four years later, in 2003, EPS was up to $0.38, and 7 years after that, in 2010, EPS was up to $0.535. It appears that the first 4 years represented a supernormal growth situation and since then a more normal growth rate has been sustained. What are the rates of growth for the earlier period and for the later period?

A) 6%; 5% B) 6%; 3% C) 10%; 8% D) 10%; 5% E) 12%; 7%

24.

If $100 is placed in an account that earns a simple 4 percent, compounded quarterly, what will it be worth in 5 years?

A) $122.02 B) $105.10 C) $135.41 D) $120.90 E) $117.48

25.

Financial Calculator Section The following question(s) may require the use of a financial calculator. Assume that you inherited some money. A friend of yours is working as an unpaid intern at a local brokerage firm, and her boss is selling some securities which call for four payments, $50 at the end of each of the next 3 years, plus a payment of $1,050 at the end of Year 4. Your friend says she can get you some of these securities at a cost of $900 each. Your money is now invested in a bank that pays an 8 percent simple (quoted) interest rate, but with quarterly compounding. You regard the securities as being just as safe, and as liquid, as your bank deposit, so your required effective annual rate of return on the securities is the same as that on your bank deposit. You must calculate the value of the securities to decide whether they are a good investment. What is their present value to you?

A) $1,000 B) $866 C) $1,050 D) $901 E) $893