You have decided to endow a Chair in Finance at Whatsamatta University. How much money must you deposit into the endowment account today if the Chair pays $125,000 per year forever (first payment one year from today) and is invested at a rate that pays out 4.50% per year? A) $277,777.78 B) $2,902,777.78 C) $2,777,777.78 […]
The yield curve in 2009 was very low, with short-term rates close to zero and long-term rates below 5 percent. What factors contributed to such low interest rates? What will be an ideal response? ANSWER In response to the banking and economic crises, the U.S. Government undertook policies to reduce interest rates in […]
Which of the following is the least likely to be included in the transition fund? A) Home mortgage B) Probate costs C) Funeral and burial costs D) Uninsured medical costs ANSWER A
A return of 12% compounded annually is the same as a return of 1% per month. Indicate whether the statement is true or false ANSWER FALSE
All of the following will improve a firm’s liquidity position EXCEPT A) increase inventory turnover. B) increase the average collection period. C) increase long-term debt and invest the money in marketable securities. D) increase accounts receivable turnover. ANSWER B
Managers can create value by undertaking positive net present value projects. Indicate whether the statement is true or false ANSWER TRUE
Which of the following is not a home equity scam? A) Equity stripping B) Loan flipping C) Red lining D) Bait and switch ANSWER C
Your parents paid $1,000 for a college fund bond when you were born. Today is your 20th birthday and you are ready to cash the bond which has grown to a value of $3,361.85. What was the average annual rate of return on your college fund bond? A) 5.50% B) 6.25% C) 6.73% D) There […]
Autorola plans to invest money today at an interest rate of 6% compounded annually to have $40,000 available for the purchase of a car four years from now. How much does the firm need to invest today? A) $50,499.08 B) $36,384.52 C) $31,683.75 D) $9,143.66 ANSWER C Explanation: C) Via Calculator: N = […]
Given the anticipated rate of inflation (i) of 2.13% and the real rate of interest (R) of 3.1%, find the nominal rate of interest (r). What will be an ideal response? ANSWER r = R + i + Ri r = .031 + .0213 + (.031 )(.0213 ) r = .0523 + .0006603 […]
