Today is your 30th birthday and you must choose between two retirement options. The first option will provide you with 10 equal annual payments of $100,000 beginning on your 65th birthday. The second option will provide you with one payment of $1,000,000 on your 70th birthday. If the interest rate is 6 percent per year […]
Last year Ann Heuser’s the rate of increase in her nominal income was equal to the rate of inflation; therefore, her real income remained unchanged. Indicate whether the statement is true or false ANSWER TRUE
You own a contract that promises an annuity cash flow of $100 year-end cash flows for each of the next three years (note: the first cash flow is exactly one year from today). At an interest rate of 10%, what is the present value of this contract? A) $248.69 B) $273.55 C) $331.00 D) $364.10 […]
Which of the following premiums is NOT factored into the price of a long-term Treasury bond? A) an inflation-risk premium B) a maturity premium C) a real risk-free interest rate D) a default-risk premium ANSWER D
In devising a cash management strategy, you should assume that future interest rates A) will likely be volatile, but accurately forecasted. B) are not likely to change from the levels of present rates. C) will likely be volatile, and difficult to forecast. D) will occur in some random fashion. ANSWER C
EBIT break-even analysis indicates the projected EBIT level such that EPS is identical under two different debt-equity mix scenarios. Indicate whether the statement is true or false ANSWER TRUE
You borrow $25,000 to buy a car, and agree to make 48 monthly payments of $607.39 to repay the loan. What annual rate of interest, which is being compounded monthly, are you being charged? What will be an ideal response? ANSWER 7.75%
You are about to purchase a new car from a dealer who has a new and unusual payment plan. You have the choice to pay $28,000 cash today or $31,000 in four years. If you have the opportunity to borrow the cash price value of the car at a rate of 2.5% and repay the […]
The required rate of return for an asset is equal to the risk-free rate plus a risk premium. Indicate whether the statement is true or false ANSWER TRUE
The Rule of 78 is sometime used to calculate the A) interest refunded on early repayment of a loan. B) term of the loan. C) monthly payment on the loan. D) balloon payment at the end of the loan. ANSWER A
