FIN 480 ALL SET TEST PAPER QUESTIONS AND
ANSWERS SURE A+
✔✔Including the option to expand in your project analysis will tend to: - ✔✔increase the
net present value of a project.
✔✔Which one of the following statements is correct? - ✔✔An increase in the initial fixed
assets required by a project will increase the accounting profit break-even point.
✔✔Which one of the following statements is correct? - ✔✔At the accounting break-even
level, the pretax profit is equal to the aftertax profit.
✔✔The option to wait: - ✔✔may have value even if a project currently does not.
✔✔Fixed costs for a new project: - ✔✔will remain constant on a per unit basis over a
given range of output.
✔✔The investment timing decision relates to: - ✔✔when a project should commence.
✔✔Northern Warehouses wants to raise $10 million to expand its business. To
accomplish this, it plans to sell 35-year, $1,000 face value zero-coupon bonds. The
bonds will be priced to yield 6 percent. What is the minimum number of bonds it must
sell to raise the $10 million it needs? - ✔✔79,178
PV= 1000/(1+.06/2)^35x2 #bonds= 10,000,000/126.297359
✔✔The yield to maturity on a bond is currently 7.75 percent. The real rate of return is
4.00 percent. What is the rate of inflation? - ✔✔3.61 percent
r= 1+.0775/1+.04 -1
✔✔Redesigned Computers has 6 percent coupon bonds outstanding with a current
market price of $875.05. The yield to maturity is 7.34 percent and the face value is
$1,000. Interest is paid semiannually. How many years is it until this bond matures? -
✔✔16 years
Enter
7.34/2
-875.05
60/2
1,000
N
I/Y
PV
PMT
, FV
Solve for
32
The number of six-month periods is 32. The number of years is 16 years.
✔✔A zero coupon bond with a face value of $1,000 is issued with an initial price of
$489.86. The bond matures in 25 years. What is the implicit interest, in dollars, for the
first year of the bond's life? - ✔✔$14.18
Implicit interest = $504.05 − $489.86 = $14.18
✔✔Grand Adventure Properties offers a 8 percent coupon bond with annual payments.
The yield to maturity is 6.85 percent and the maturity date is 8 years from today. What is
the market price of this bond if the face value is $1,000? - ✔✔$1,069.07
Enter
8
6.85
80
1,000
N
I/Y
PV
PMT
FV
Solve for
-1,069.07
✔✔Rosina purchased a 15-year bond at par value when it was initially issued. The bond
has a coupon rate of 7 percent and matures 13 years from now. If the current market
rate for this type and quality of bond is 7.5 percent, then Rosina should expect: - ✔✔to
realize a capital loss if she sold the bond at today's market price.
✔✔If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and
increases in market interest rates will: - ✔✔premium; decrease this premium
ANSWERS SURE A+
✔✔Including the option to expand in your project analysis will tend to: - ✔✔increase the
net present value of a project.
✔✔Which one of the following statements is correct? - ✔✔An increase in the initial fixed
assets required by a project will increase the accounting profit break-even point.
✔✔Which one of the following statements is correct? - ✔✔At the accounting break-even
level, the pretax profit is equal to the aftertax profit.
✔✔The option to wait: - ✔✔may have value even if a project currently does not.
✔✔Fixed costs for a new project: - ✔✔will remain constant on a per unit basis over a
given range of output.
✔✔The investment timing decision relates to: - ✔✔when a project should commence.
✔✔Northern Warehouses wants to raise $10 million to expand its business. To
accomplish this, it plans to sell 35-year, $1,000 face value zero-coupon bonds. The
bonds will be priced to yield 6 percent. What is the minimum number of bonds it must
sell to raise the $10 million it needs? - ✔✔79,178
PV= 1000/(1+.06/2)^35x2 #bonds= 10,000,000/126.297359
✔✔The yield to maturity on a bond is currently 7.75 percent. The real rate of return is
4.00 percent. What is the rate of inflation? - ✔✔3.61 percent
r= 1+.0775/1+.04 -1
✔✔Redesigned Computers has 6 percent coupon bonds outstanding with a current
market price of $875.05. The yield to maturity is 7.34 percent and the face value is
$1,000. Interest is paid semiannually. How many years is it until this bond matures? -
✔✔16 years
Enter
7.34/2
-875.05
60/2
1,000
N
I/Y
PV
PMT
, FV
Solve for
32
The number of six-month periods is 32. The number of years is 16 years.
✔✔A zero coupon bond with a face value of $1,000 is issued with an initial price of
$489.86. The bond matures in 25 years. What is the implicit interest, in dollars, for the
first year of the bond's life? - ✔✔$14.18
Implicit interest = $504.05 − $489.86 = $14.18
✔✔Grand Adventure Properties offers a 8 percent coupon bond with annual payments.
The yield to maturity is 6.85 percent and the maturity date is 8 years from today. What is
the market price of this bond if the face value is $1,000? - ✔✔$1,069.07
Enter
8
6.85
80
1,000
N
I/Y
PV
PMT
FV
Solve for
-1,069.07
✔✔Rosina purchased a 15-year bond at par value when it was initially issued. The bond
has a coupon rate of 7 percent and matures 13 years from now. If the current market
rate for this type and quality of bond is 7.5 percent, then Rosina should expect: - ✔✔to
realize a capital loss if she sold the bond at today's market price.
✔✔If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and
increases in market interest rates will: - ✔✔premium; decrease this premium
