1. Which of the following is correct regarding the payback period?

A That it adjusts for uncertainty of later cash flow is its advantage.

B That it favors short-term project is its disadvantage.

C That it ignores time value of money is its advantage.

D That it requires an arbitrary cutoff point is its advantage.

E None of the above

2. Consider a 2-year 5% treasury note with face value $1,000 that pays semi-annual coupon. What is the maximum price you are willing to pay for it if the yield-to-maturity is 4%?

A $981.19

B $1000

C $1018.86

D $1019.04

E None of the above

3. You paid $957,3 for a 5% 5-year bond, which has a face value of $1000 and pays coupons twice each year. What is the yield-to-maturity? Choose the closest answer

A 2%

B 3%

C 4%

D 5%

E 6%

4, A bond matured in 15 years has a current yield of 8.35%. The face value is $1000 while the selling price is $1197.93. What is its coupon rate if it pays semi-annual coupon payments?

A 4.18%

B 5.00%

C 8.35%

D 10%

E None of the above

5. If you want to increase your purchasing power by 5%, what is the required nominal rate when the inflation rate is 3%?

A 3.0%

B 5.0%

C 8.0%

D 8.2%

E 15.0%

6. High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year. Valley High Builders currently pays an annual dividend of $1.20and plans on increasing its dividend by 3 percent annually. Given this information, you know for certain that the stock of High Country Builders' has a lower _______ than the stock of Valley High Builders

A market price

B dividend yield

C capital gains yield

D total return

E The answer cannot be determined based on the information provided