Question

5) 5) Which one of the following variables is the exponent in the present value formula? A) Present value B) Interest rate C) Number of time periods D) Future value E) There is no exponent in the present value formula 6) 6) What are the distributions of either cash or stock to shareholders by a corporation called? A) Coupon payments B) Retained earnings C) Capital payments D) Dividends E) Diluted profits 7) Suppose the first comic book of a classic series was sold in 1954. In 2017, the estimated price for this comic book was $310,000, which is an annual return of 22 percent. For this to be true, what was the original price of the comic book in 1954? A) S.97 B) $1.20 C) $1.33 D ) $1.00 E) $1.12 8) - 8) Nadine is retiring today and has $96,000 in her retirement savings. She expects to earn 5.5 percent, compounded monthly. How much can she withdraw from her retirement savings each month if she plans to spend her last penny 18 years from now? A) $809.92 B ) $919.46 C) $701.10 D) $847.78 E) $616.08 9) 9) With an interest-only loan the principal is: A) repaid in increasing increments through regular monthly payments. B) forgiven over the loan period; thus it does not have to be repaid. Crepaid in decreasing increments and included in each loan payment. D) repaid in one lump sum at the end of the loan period. E) repaid in equal annual payments. 10) 10) Currently, a firm has an EPS of $2.08 and a benchmark PE of 12.7. Earnings are expected to grow by 3.8 percent annually. What is the estimated current stock price? A) $26.08 B) $26.42 C) $28.13 D ) $27.09 E) $27.42 11) 11) Samantha owns a reverse convertible bond. At maturity, the principal amount will be repaid in: A) the form of a newly issued bond. B) either cash or shares of stock. C) either shares of stock or a newly issued bond. D) cash while the interest is paid in shares of stock. E) shares of stock.

Answer 1

Ans 5) Correct answer is option C number of time periods.

Ans 6) Correct answer is option D ie., Dividends

Ans 7) Correct answer is option E

Original price in 1954 = 310000/(1.22)^63

=$1.12

Ans 8) Correct answer is option C ie., $701.10.

Annuity payment = principal * interest rate/(1 - (1 + interest rate)^(-number of periods) )

Annuity payment = $96000 * .004583/(1 - 1.004583^-216)

= $701.10

Ans 9) Correct answer is option D since principal is paid in one lump sum at the end of loan period.

Ans 10) Estimated current stock price = EPS of stock * benchmark PE

= 2.08 * 12.7

= $26.42

Correct answer is option B.

Ans 11) In case of reverse convertible bond principal amount is repaid in the form of either cash and or share of stocks. Correct answer is option B