SOLVED

31) Debentures are A) Unsecured bonds B) A form of equity C) Convertible bonds D) Loans from governments E) Government grants 32) Another phrase for fair value of a bond is A) Book value of the bond B) Adjusted value of the bond C) Market value of the bond D) Projected value of a bond E) Face value of a bond 33) What payment does Nick Huntley have to make monthly to a savings fund that returns 8%, compounded quarterly, if he wishes to buy out his partner when she retires in 3 years and his partner expects to receive $100,000 for her shares in their business? A) $3,152 B) $3,349 C) $11,558 D) $11,784 E) $12,934 34) PT&T Inc. has signed a lease for a manufacturing facility and will make a $123,552 payment twice a year at the beginning of each period for 10 years. If the interest being charged is 14%, what is the total amount of interest PT&T will pay by the end of the contract? A) $500,836 B) $1,070,506 C) $1,162,624 D) $1,488,125 E) $2,594,036 35) Millennium Laboratories can license one of its patented pharmaceutical products to a Japanese company for a five-year period. Millennium would like to insure that the fee it charges to the Japanese company will return no less than what the company projects it could have made had it marketed the product itself. Millennium believes it could have achieved a minimum of $400,000 in the first year, $10,500,000 in the second year, and $50 million, $65 million and $65 million at the end of each year. Given that interest rates are at 9%, what up-front fee paid immediately should Millennium charge? A) $122,508,000 B) $136,107,000 C) $148,357,000 D) $157,502,000 E) $190,900,000 36) What quarterly payment at the beginning of each period for ten years should Mountain Leasing charge for a $100,000 chalet when interest rates are 12%? A) $3,000 B) $5,040 C) $5,190 D) $18,960 E) $21,240 37) What is the maximum price XL Satellites can pay for a machine that is expected to produce marginal revenues of $20,000, $25,000, $30,000, $35,000, and $40,000 at the end of each year for five years if the interest rate is 10%? A) $100,111 B) $110,122 C) $113,724 D) $121,137 E) $150,000 38) What is the maximum price Genome Inc. can pay for a machine that is expected to produce marginal revenues of $20,000, $25,000, $30,000, $35,000, and $40,000 at the beginning of each year for five years if the interest rate is 10%? A) $100,111 B) $110,122 C) $113,724 D) $121,137 E) $150,000 39) Five years ago John Henry set aside $5,000 in a separate bank account to be used for his favourite hobby – betting on horses at the race track. This account now has a $10,000 balance. What is the approximate compound interest rate John Henry’s hobby is earning? A) 2.9% B) 6.9% C) 10.0% D) 14.4% E) 100.0% 40) Which of the following is the best description of the Rule of 72? A) The Rule of 72 tells how what an investment is worth when interest rates are expected to double. B) The Rule of 72 tells how what interest rates are when an investment is expected to triple. C) The Rule of 72 tells how long it takes an investment to triple at a given interest rate. D) The Rule of 72 tells how what interest rates are when an investment is expected to double. E) The Rule of 72 tells how long it takes an investment to double at a given interest rate. 41) Next year interest rates are expected to be 8% and the price of a barrel of oil is expected to $110. The corresponding figures for the current year are 6% and $100. Assuming that long term interest rates in a stable economic environment are 4%, which of the following statements best expresses expected inflation levels for next year? A) Inflation is expected to rise 2% next year. B) Inflation is expected to rise 4% next year. C) Inflation is expected to rise 10% next year. D) Inflation is expected to rise 25% next year. E) Inflation is expected to rise 100% next year. 42) Jameson Insurance invests $100,000 for five years in a guaranteed investment certificate that pays 4% interest compounded quarterly. How much interest will Jameson earn over that period? A) $5,100 B) $18,050 C) $21,670 D) $22,020 E) $119,110 43) Maple Cloud Services Inc. is considering the development a brand new type of cloud computing server that requires $85,000 to be spent at the end of each of the next six years. Revenues of $100,000 per year for five years start at the end of the of the second year. Should Maple pursue this opportunity? A) No, because the Maple will be $21,960 worse off after at the end of the investment period. B) No, because the Maple will be $10,000 worse off after at the end of the investment period. C) No, because the Maple will only break even by the end of the investment period. D) Yes, because the Maple will be $4,870 better off after at the end of the investment period. E) Yes, because the Maple will be $75,000 better off after at the end of the investment period. 44) A $1,000 bond with 6% semi-annual coupon payments and a maturity date of 10 years is quoted at $864.11. What is the current interest rate? A) 2% B) 4% C) 6% D) 8%