UO BA 318 Online Midterm Questions With Complete
Solutions
_________________ represents additional compensation
provided to bondholders to offset the possibility that the bond
issuer might not pay the interest and/or principal payments as
expected? Correct Answers Default risk premium
$1,000 is expected to be received 10 years from now. If interest
rates go up, the present value of this $1,000 future cash flow is:
(less or more than $1000) Correct Answers less
4 Ways to Reduce Agency Problems Correct Answers 1.
Compensation based on firm performance
2. Board of Directors oversees managers
3. Threat of takeover
4. Bank & Credit Analysis
A 25 year bond issued today by Carris, Inc. has a coupon rate of
11%, a required return of 12% and a face value of $1,000. The
bond will be sold 8 years from now when interest rates will be
9%. What is the actual rate of return (or holding period return)
over this 8 year period? Round to the nearest percent. Correct
Answers 123%
A 25 year bond issued today by Carris, Inc. has a coupon rate of
11%, a required return of 12% and a face value of $1000. The
bond will be sold 8 years from now when interest rates will be
9%. What is the beginning value of the bond when it is issued
(to the nearest dollar)? Correct Answers $922
, A 25 year bond issued today by Carris, Inc. has a coupon rate of
11%, a required return of 12% and a face value of $1000. The
bond will be sold 8 years from now when interest rates will be
9%. What is the ending value of the bond when it is sold (to the
nearest dollar)? Correct Answers $1,171
A bond yielded a real rate of return of 4.89 percent for a time
period when the inflation rate was 3.15 percent. What was the
actual nominal rate of return? Correct Answers 8.19%
A scholarship provider has $500000 which she will invest today
to fund a scholarship forever. She expects to earn 5% on her
money each year. If she wants to begin paying out the
scholarship starting today, what will the annual scholarship
payment be? Correct Answers $23,810
Agency Problem Correct Answers the possibility of conflict of
interest between the stockholders and management of a firm
Annual Percentage Rate (APR) Correct Answers Cost of
borrowing money on an annual basis; takes into account the
interest rate and other related fees on a loan.
annuity Correct Answers a special case of multiple cash flows
where there is a level of cash flows (C) that end at a certain time
Anytime you are buying something rather than saving money
use the formula with __ on it. Correct Answers PV
are long term bonds or short term bonds riskier? Correct
Answers long term bonds (more time for interest rates to rise)
Solutions
_________________ represents additional compensation
provided to bondholders to offset the possibility that the bond
issuer might not pay the interest and/or principal payments as
expected? Correct Answers Default risk premium
$1,000 is expected to be received 10 years from now. If interest
rates go up, the present value of this $1,000 future cash flow is:
(less or more than $1000) Correct Answers less
4 Ways to Reduce Agency Problems Correct Answers 1.
Compensation based on firm performance
2. Board of Directors oversees managers
3. Threat of takeover
4. Bank & Credit Analysis
A 25 year bond issued today by Carris, Inc. has a coupon rate of
11%, a required return of 12% and a face value of $1,000. The
bond will be sold 8 years from now when interest rates will be
9%. What is the actual rate of return (or holding period return)
over this 8 year period? Round to the nearest percent. Correct
Answers 123%
A 25 year bond issued today by Carris, Inc. has a coupon rate of
11%, a required return of 12% and a face value of $1000. The
bond will be sold 8 years from now when interest rates will be
9%. What is the beginning value of the bond when it is issued
(to the nearest dollar)? Correct Answers $922
, A 25 year bond issued today by Carris, Inc. has a coupon rate of
11%, a required return of 12% and a face value of $1000. The
bond will be sold 8 years from now when interest rates will be
9%. What is the ending value of the bond when it is sold (to the
nearest dollar)? Correct Answers $1,171
A bond yielded a real rate of return of 4.89 percent for a time
period when the inflation rate was 3.15 percent. What was the
actual nominal rate of return? Correct Answers 8.19%
A scholarship provider has $500000 which she will invest today
to fund a scholarship forever. She expects to earn 5% on her
money each year. If she wants to begin paying out the
scholarship starting today, what will the annual scholarship
payment be? Correct Answers $23,810
Agency Problem Correct Answers the possibility of conflict of
interest between the stockholders and management of a firm
Annual Percentage Rate (APR) Correct Answers Cost of
borrowing money on an annual basis; takes into account the
interest rate and other related fees on a loan.
annuity Correct Answers a special case of multiple cash flows
where there is a level of cash flows (C) that end at a certain time
Anytime you are buying something rather than saving money
use the formula with __ on it. Correct Answers PV
are long term bonds or short term bonds riskier? Correct
Answers long term bonds (more time for interest rates to rise)
