finance questions

Post ID: 3184724

Overview

Period	APR	Compounding Per Year	Effective Annual Rate
Monthly	7.5%	12

What is the EAR?

Question 1 options:

	8.34%
	8.88%
	7.19%
	7.76%
	7.45%

Period	APR	Compounding Per Year	Effective Annual Rate
Daily	4.25%	365

What is the EAR?

Question 2 options:

	3.78%
	4.34%
	4.59%
	4.09%
	3.93%

You have a savings account in which you leave the funds for one year without adding or withdrawing from the account. What is the value of the highest EAR given the following periodic rates: a daily compounded rate of 0.045%, a weekly compounded rate of 0.305%, a monthly compounded rate of 1.35%, a quarterly compounded rate of 4.15%, a semi-annually compounded rate of 8.5%, or an annually compounded rate of 17%?

EAR = (1 + Periodic Rate)C/Y – 1

Question 3 options:

	16.10%
	18.36%
	17.85%
	20.05%
	16.72%

What is the EAR of a car loan that is advertised at 9.5% (APR) and paid with monthly payments?

Question 4 options:

	9.92%
	8.98%
	11.93%
	11.45%
	10.81%

Let's follow up with Sam Hinds, the dentist, and his remodeling project (Chapter 4, Problem 12). The cost of the equipment for the project is $18,000, and he will finance the purchase with a 7.5% loan over six years. Originally, the loan called for annual payments. Redo the payments based on monthly payments (twelve per year).

Question 5 options:

	331.43
	311.22
	293.81
	268.93
	307.90

Cooley Landscaping needs to borrow $30,000 for a new front-end dirt loader. The bank is willing to loan the money at 8.5% interest for the next ten years with annual, semiannual, quarterly, or monthly payments. What is the amount paid each month if monthly payments are selected.

Question 6 options:

	357.03
	330.55
	419.03
	371.96
	349.52

Matt Johnson delivers newspapers and is putting away $15.00 every month from his paper route collections. Matt is eight years old and will use the money when he goes to college in ten years. What will be the value of Matt's account in ten years with his monthly payments if he is earning 12% (APR)?

Question 7 options:

	3,217.41
	3,621.31
	3,057.91
	3,745.40
	3,450.58

If Denise is considering switching to a monthly savings plan and puts one-twelfth of $5,000 away each month ($416.66), how much will she have in forty-four years at the 6% APR?

Question 8 options:

	1,199,421.35
	925,513.72
	1,076,759.95
	1,231,525.55
	1,061,727.60

What payment does Denise (from Problem 8) need to make at the end of each month over the coming forty-four years at 6% to reach her retirement goal of $1,000,000?

Question 9 options:

	386.96
	337.27
	433.74
	357.32
	440.76

Moulton Motors is advertising the following deal on a used Honda Accord: "Monthly Payments of $245.00 for the next 48 months and this beauty can be yours!" The sticker price of the car is $9,845.00. If you bought the car, what interest rate would you be paying in EAR terms?

Question 10 options:

	9.38%
	7.75%
	8.75%
	9.09%
	9.23%

Using the information from the previous problem, what is the remaining balance at the end of the second payment?

Question 11 options:

	9,327.23
	10,002.39
	10,457.35
	8,623.72
	9,501.41

Using the information from the previous problem, what is the interest payment for month 3?

Question 12 options:

	76.11
	62.92
	73.69
	68.32
	71.27

Given the information below, estimate the approximation inflation rate.

Nominal Rate	Real Rate	Approximate Inflation
11%	5%	?

Question 13 options:

	4%
	6%
	16%
	7%
	5%

Given the information below, estimate the approximation inflation rate.

Nominal Rate	Real Rate	Approximate Inflation
8%	2%	?

Question 14 options:

	6%
	2%
	8%
	4%
	10%

Given the information below, find the exact inflation rate.

Nominal Rate	Real Rate	True Inflation
11%	5%	?

Question 15 options:

	5.30%
	5.71%
	4.83%
	6.53%
	5.09%

Given the information below, find the exact inflation rate.

Nominal Rate	Real Rate	True Inflation
8%	2%	?

Question 16 options:

	5.70%
	5.59%
	6.07%
	6.86%
	5.88%

The Republic of New South Brazillia, a small developing island country in South Central America is experiencing a very high inflation rate at this time. The annual inflation rate is 40%. If the real rate of interest is 2%, what nominal interest rates must the New South Brazillians get to stay ahead of inflation and still have a reward for waiting?

Question 17 options:

	45.52%
	42.80%
	43.21%
	41.81%
	47.40%

The Republic of Northern Lights, a small stable country in the North Atlantic, is experiencing a negative inflation rate (deflation) at this time. The annual inflation rate is –4%. If the nominal rate of interest is 6%, what is the real interest rate that the Northern Lightians are getting as a reward for waiting?

Question 18 options:

	9.81%
	10.42%
	10.51%
	11.00%
	11.60%

If Treasury bills average 1.47% per year, Treasury bonds average 3.66% per year, and AAA corporate bonds average 5.33% per year from 2000–2016 period, estimate the default premium using the average Treasury bond rate and the AAA corporate bond rate.

Question 19 options:

	1.67%
	1.28%
	1.53%
	1.44%
	1.55%

If Treasury bills average 1.47% per year, Treasury bonds average 3.66% per year, and AAA corporate bonds average 5.33% per year from 2000–2016 period, estimate the maturity premium using the average Treasury bond rate and the Treasury bill rate.

Question 20 options:

	2.35%
	2.19%
	2.06%
	2.44%
	2.12%

Michael is shopping for a special automobile. He finds the exact car he wants, a 1966 dark-blue Pontiac GTO. This car is currently the property of a neighbor, so in order to buy the car for the agreed-upon price of $35,000, Michael must secure his own financing. He visits four different financial institutions and gets the following loan offers:

Bank 1: 60 monthly payments of $726.54

Bank 2: 48 monthly payments of $870.97

Bank 3: 156 weekly payments of $256.20

Bank 4: 24 quarterly payments of $1,115.81

Which loan should Michael take? Hint: Which loan has the lowest EAR?

Question 21 options:

	8.31%
	5.87%
	7.32%
	8.41%.
	7.77%

Next set!:

Anderson Motors, Inc. has just set the company dividend policy at $0.50 per year. The company plans on being in business forever. What is the price of this stock if an investor wants a 13% return?

Question 1 options:

	3.53
	3.48
	4.40
	3.73
	3.85

What is the price of this stock if an investor wants a 20% return?

Question 2 options:

	2.75
	3.05
	2.50
	2.59
	2.47

Diettreich Electronics wants its shareholders to earn a 15% return on their investment in the company. At what price would the stock need to be priced today if Diettreich Electronics had a $1.75 constant annual dividend forever?

Question 3 options:

	12.61
	10.52
	9.98
	11.67
	11.89

Question 4 options:

	17.45
	17.31
	18.77
	16.95
	16.67

Singing Fish Fine Foods has a current annual cash dividend policy of $2.25. The price of the stock is set to yield a 12% return. What is the price of this stock if the dividend will be paid for 60 years?

Question 5 options:

	17.73
	18.73
	19.17
	20.18
	16.46

Question 6 options:

	18.31
	18.75
	17.11
	17.85
	19.51

Pfender Guitars has a current annual cash dividend policy of $4.00. The price of the stock is set to yield an 8% return. What is the price of this stock if the dividend will be paid for 60 years and then a liquidating or final dividend of $25.00?

Question 7 options:

	47.35
	48.95
	58.04
	52.57
	49.75

Pfender Guitars has a current annual cash dividend policy of $4.00. The price of the stock is set to yield an 8% return. What is the price of this stock if the dividend will be paid for 100 years and then a liquidating or final dividend of $25.00?

Question 8 options:

	49.99
	59.33
	52.16
	48.78
	50.68

King Waterbeds has an annual cash dividend policy that raises the dividend each year by 4%. Last year's dividend was $0.40 per share. What is the price of this stock if an investor wants a 13% return?

Question 9 options:

	4.84
	4.44
	5.34
	4.58
	4.62

What is the price of this stock if an investor wants a 20% return?

Question 10 options:

	2.48
	2.42
	2.68
	2.60
	2.28

Last year, Seitz Glassware paid a dividend of $0.25 per share. The stock's target return rate is 10%. What is the stock's price if the annual growth rate is 7%?

Question 11 options:

	7.41
	7.97
	8.92
	8.84
	9.71

What is the stock's price if the annual growth rate is 9%?

Question 12 options:

	28.49
	31.17
	28.12
	24.65
	27.25

Miles Hardware has an annual cash dividend policy that raises the dividend each year by 3%. Last year's dividend was $1.00 per share. Investors want a 15% return on this stock. What is the stock's price if the company will be in business for thirty-five years and not have a liquidating dividend?

Question 13 options:

	9.02
	8.77
	7.74
	8.40
	8.14

What is the stock's price if the company will be in business for seventy-five years and not have a liquidating dividend?

Question 14 options:

	8.58
	8.09
	7.99
	9.30
	8.88

Sia Dance Studios has an annual cash dividend policy that raises the dividend each year by 2%. Last year's dividend was $3.00 per share. The company will be in business for forty years with no liquidating dividend. What is the price of this stock if an investor wants an 15% return?

Question 15 options:

	24.98
	26.37
	27.17
	23.35
	24.18

What is the price of this stock if an investor wants an 17% return?

Question 16 options:

	19.02
	21.51
	19.48
	20.32
	23.46

Fey Fashions expects the following dividend pattern (6 dividend increases at a CONSTANT growth rate):

Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7
$1.00	$1.10	$1.21	$1.33	$1.46	$1.61	$1.77

Then the company will have a constant dividend of $2.00 forever. What is the price of this stock today if an investor wants to earn 20%?

Question 17 options:

	8.30
	7.79
	8.78
	7.35
	8.55

Staton-Smith Software is a new up-start company and will not pay dividends for the first five years of operation. It will then institute an annual cash dividend policy of $2.50 with a constant growth rate of 5% with the first dividend at the end of year six. The company will pay dividends for 20 years. What is the price of this stock if an investor wants a 20% return?

Question 18 options:

	6.95
	6.41
	6.23
	6.73
	7.03

Question 19 options:

	1.20
	1.25
	1.53
	1.32
	1.46

Fenway Athletic Club plans to offer its members preferred stock with a par value of $100 and a 6% annual dividend rate. What price should Fenway be if Jonathan wants a 15% return?

Question 20 options:

	60
	40
	55
	45
	50

What price should Fenway be if Jonathan wants a 18% return?

Question 21 options:

	37.71
	33.33
	35.82
	33.19
	29.62

Yankee Athletic Club has preferred stock with a par value of $50 and an annual 6% cumulative dividend. Given the following market prices for the preferred stock, what is each investor seeking for his or her return? Derek is willing to pay $20.00.

Question 22 options:

	5%
	25%
	15%
	20%
	10%

What if Derek is willing to pay $15.00.

Question 23 options:

	20%
	25%
	10%
	5%
	15%

Villalpando Winery wants to raise $10 million from the sale of preferred stock. If the winery wants to sell 1 million shares of preferred stock, what annual dividend will it have to promise if investors demand an 6% return?

Question 24 options:

	1.00
	.70
	.90
	.80
	.60

Question 25 options:

	.75
	.65
	.50
	.90
	.85

In 2001, ACME company paid $0.28 in dividends. In 2010, ACME paid $1.212 in dividends. Assuming that the dividend growth rate remains the same as the past and the stock's current price is $54.56, what is ACME's required rate of return in 2011?

Question 26 options:

	18.12%
	17.74%
	18.92%
	20.29%
	21.44%

In 2005, ACME company paid $0.32 in dividends. In 2010, ACME paid $0.632 in dividends. Assuming that the dividend growth rate remains the same as the past and the stock's current price is $20.85, what is ACME's required rate of return 2011?

Question 27 options:

	17.09%
	15.82%
	19.80%
	17.45%
	18.05%

Peterson Packaging Incorporated does not currently pay dividends. The company will start with a $0.50 dividend at the end of year three and grow it by 10% for each of the next six years until it nearly reaches $1.00. After six years of growth, it will fix its dividend at $1.00 forever. If you want a 15% return on this stock, what should you pay today, given this future dividend stream?

Question 28 options:

	3.83
	4.09
	4.22
	3.57
	3.92