SOLVED

21) As a bond approaches within weeks of its maturity date, its market price A) Approaches zero B) Rises or drops below the face value of the bond based on current interest rates C) Is equal to the face value of the bond plus the total interest earned D) Approaches the face value of the bond E) Is equal to the future value of the stream of interest payments 22) A bond with a term of 20 years, a coupon rate of 8% paid at the end of every year and a face value of $1,000 was purchased November 1. By November 2nd interest rates had dropped to 6%. What is the selling price of the bond on November 2nd? A) $12,387 B) $11,495 C) $1,229 D) $771 E) $337 23) Which of the following, under most circumstances, would be paid with an annuity due? A) Bank loan B) Warehouse lease C) Debt interest D) Amortization expense E) Dividend on preferred shares 24) A bond with the term of 20 years, face value of $5,000, a coupon rate of 8%, compounded quarterly and payments 4 times a year, was issued 15 years ago. Currently, interest rates are at 12%. What could the bond be sold for today? A) $4,279 B) $4,471 C) $4,853 D) $5,047 E) $4,256 25) 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 fee paid at the beginning of each year, should Millennium charge? A) $110,700,000 B) $124,100,000 C) $63,600,000 D) $32,100,000 E) $20,900,000 26) If a contract specifies lease payments of $1,250 to be made at the beginning of each quarter for the next four years, what lump sum payment at the beginning of the lease should satisfy the landlord, if interest rates are at 12%, compounded quarterly? A) $16,172 B) $4,252 C) $15,701 D) $17,009 E) $17,585 27) The Export Development Corp.(EDC) offered a $500,000 startup loan to qualifying entrepreneurs. For year one of the loan, it was interest and payment free. Subsequently, there was a two-year period where interest only payments were made at the end of each year. In Year 4, both interest and principal payments were made. The loan had to be repaid at the end of Year 8. If the interest rate charged in years 2 through 8 remained at 8% compounded annually, what was the total interest paid on the entire EDC loan. A) $33,026 B) $32,000 C) $246,894 D) $120,494 E) $206,143 28) CapiCal Enterprises is transforming some of their fossil fuel based processes to those being driven by wind turbines. Based on extensive meteorological data, the following savings have been projected for the next five years: $850,000, $680,000, $995,000, $778,000 and $900,000. If interest rates are at 7% compounded annually and the company is willing to invest all the savings in the green technology, what would it be willing to pay today for the reengineering? A) $2,657,332 B) $5,506,501 C) $3,435,778 D) $14,477,104 E) $8,989,341 29) Bottomly Industries has entered a capital lease with a financial institution for a warehouse on a small parcel of land. If the interest rate being charged is 12%, compounded every 2 months, and Bottomly will be making payments of $24,083 at the beginning of every two months [six times a year] for five years, what is the historical cost value of the asset that will appear on the Company’s balance sheet? A) $86,814 B) $193,993 C) $325,667 D) $539,375 E) $550,162 30) Magenta Oil and Gas Exploration Inc. is issuing a $25 million, 10% bonds to partially finance a refining facility. There are no assets pledged against it for security. This type of financing is called a/an A) Debenture B) Limited bond C) Unlimited liability D) Unsecured mortgage E) Open ended loan