1. Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer. The loan requires five equal annual (end of year) payments. If the loan provides the bank with a 12 percent return, what will be your annual payments?

a) $5,547.85

b) $3,148.12   

c) $6,000.00

d) $1,666.67

2. Each year a company is required to place money into a bank account to retire its bond's principal at maturity. If the bond's principal is $10 million, and bank interest is estimated at 8%, how much are the annual payments if they are to be made over the last 20 years of the bond's life?

a) $101,853

b) $218,522

c) $462,950

d) $425,387   

3. Because of a lucky breakthrough, Philadelphia Pharmaceutical’s current dividend per share of $2.00 is expected to grow at a very high 32 percent per year for the next three years and then to grow at a more normal 6 percent per year. What is the value of a Philadelphia share if the investors’ expected return is 20 percent?

4. Common stockholders:

a) have a residual claim on both income and assets

b) are last in line in the event of bankruptcy

c) have a higher claim on assets than preferred stockholders

d) both a & b

e) all of the above

5. If a bond is selling at par value, which of the following would be the same as its coupon rate:

a) Current Yield

b) Yield to Maturity

c) Market Interest Rate

d) Both b & c

e) All of the above