FIN 300 TEST QUESTIONS WITH 100%
CORRECT ANSWERS
When a bond's yield to maturity is less than the bond's coupon rate, the bond: - Answer-
is selling at a premium
Today you earn a salary of $36,000. What will be your annual salary 12 years from now
if you earn annual raise of 3.6%? - Answer- $55,032.54
Winston Enterprises would likely buy some additional land and build a new factory. The
anticipated total cost is $136 million. The owner of the firm is quite conservative and will
only do this when the company has sufficient funds to pay cash for the entire expansion
project. Management has decided to save $450,000 a month for this purpose. The firm
earns 6% compounded monthly on the funds it saves. How long does the company
have to wait before expanding its operations? - Answer- 299.97 months
A $1,000 face value bond currently has a yield to maturity of 6.69%. The bond matures
in 3 years and pays interest annually. The coupon rate is 7 percent. What is the current
price of this bond? - Answer- $1,008.18
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10
years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of
return on both annuities is 8%. Which of the following statements is correct given this
information? - Answer- Annuity B has both a higher present value and a higher future
value than annuity A
Which of the following bonds is the least sensitive to changes in the market interest
rates? - Answer- 6 percent annual coupon, 10 year
A corporate bond pays 7% interest. How much would you municipal bond have to pay to
be equivalent to this on an after-tax if you are in the 28% bracket? - Answer- 1.96 %
You invested $1,400 in an account that pays 5% simple interest. How much more could
you have earned over a 20-year period if the interest had compounded annually? -
Answer- $914.62
The Furniture Hut is offering a bedroom suite for $1,999. The credit terms are 60
months at $50 per month. What is the interest rate on this offer? - Answer- 17.30
percent
CORRECT ANSWERS
When a bond's yield to maturity is less than the bond's coupon rate, the bond: - Answer-
is selling at a premium
Today you earn a salary of $36,000. What will be your annual salary 12 years from now
if you earn annual raise of 3.6%? - Answer- $55,032.54
Winston Enterprises would likely buy some additional land and build a new factory. The
anticipated total cost is $136 million. The owner of the firm is quite conservative and will
only do this when the company has sufficient funds to pay cash for the entire expansion
project. Management has decided to save $450,000 a month for this purpose. The firm
earns 6% compounded monthly on the funds it saves. How long does the company
have to wait before expanding its operations? - Answer- 299.97 months
A $1,000 face value bond currently has a yield to maturity of 6.69%. The bond matures
in 3 years and pays interest annually. The coupon rate is 7 percent. What is the current
price of this bond? - Answer- $1,008.18
You are comparing two annuities. Annuity A pays $100 at the end of each month for 10
years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of
return on both annuities is 8%. Which of the following statements is correct given this
information? - Answer- Annuity B has both a higher present value and a higher future
value than annuity A
Which of the following bonds is the least sensitive to changes in the market interest
rates? - Answer- 6 percent annual coupon, 10 year
A corporate bond pays 7% interest. How much would you municipal bond have to pay to
be equivalent to this on an after-tax if you are in the 28% bracket? - Answer- 1.96 %
You invested $1,400 in an account that pays 5% simple interest. How much more could
you have earned over a 20-year period if the interest had compounded annually? -
Answer- $914.62
The Furniture Hut is offering a bedroom suite for $1,999. The credit terms are 60
months at $50 per month. What is the interest rate on this offer? - Answer- 17.30
percent
