Future Cash Flow Valuation

Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. You want to invest money for three years in an account that pays nine-percent interest annually. How much would you need to invest today to reach a future goal of $12,000? (Round your answer to the nearest dollar.)
A. $10,100
B. $11,432
C. $9,266
D. $10,984
2. Your car dealer is willing to lease you a new car for $190 a month for 36 months. Payments are due on the first day of each month, starting with the day you sign the lease contract. If your cost of money is 6½ percent, what's the current value of the lease?
A. $7,203.14
B. $10,331.03
C. $9,197.74
D. $6,232.80

3. Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the company announced that future dividends will be increasing by 2.8 percent annually. If you require a return of 11.6 percent, how much are you willing to pay to purchase one share of this stock today?
A. $16.67
B. $16.00
C. $18.23
D. $15.57

4. Which of the following is a network-based, over-the-counter exchange, with no physical marketplace?
A. NYMEX (New York Mercantile Exchange)
B. NYSE (New York Stock Exchange)
C. WSJ (Wall Street Journal)
D. NASDAQ (National Association of Securities Dealers Automated Quotations)

5. Gee-Gee's is going to pay an annual dividend of $2.05 a share on its common stock next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth five years from now if the applicable discount rate is 10.9 percent?
A. $26.28
B. $26.94
C. $28.30
D. $27.61

6. Your older sister deposited $2,000 today at 6½ percent interest for five years. You would like to have just as much money at the end of the next five years as your sister will have. However, you can only earn 6 percent interest. How much more money must you deposit today than your sister did if you are to have the same amount at the end of the five years?
A. $47.62
B. $32.19
C. $38.78
D. $53.39

7. The bond principal is repaid on which one of these dates?
A. Maturity date
B. Clean date
C. Yield date
D. Coupon date

8. You need some money today. Your friend agrees to loan you the money if you make payments of $30 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you two-percent interest per month. How much money are you borrowing?
A. $170.68
B. $171.40
C. $164.09
D. $168.22

9. New Homes has a bond issue with a coupon rate of 5½ percent that matures in 8½ years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What's the yield to maturity?
A. 6.36 percent
B. 6.42 percent
C. 5.74 percent
D. 5.92 percent

10. If payments on a loan are constantly larger than the interest rate, what will happen as the loan is amortized?
A. The principal amount increases, and the amount of interest expense increases.
B. The principal amount decreases, but the amount of interest expense increases.
C. The principal amount decreases, and the amount of interest expense decreases.
D. The principal amount increases, but the amount of interest expense decreases.

11. Today, you deposit $9,000 into an account that pays 10 percent annually. In one year, you'll deposit  another $5,000 in the account. How much will you have in the account after two years?
A. $11,660
B. $15,400
C. $16,940
D. $16,390

12. Which of the following will produce the lowest present value interest factor?
A. 8 percent interest for 5 years
B. 6 percent interest for 5 years
C. 6 percent interest for 10 years
D. 8 percent interest for 10 years

13. What's it called when we use a table or spreadsheet to track a loan balance, payments, and the portion of these payments that can be attributed to interest and paying off the principal?
A. Loan payment plan
B. Loan matrix
C. Loan amortization
D. Loan tracking

14. A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the
A. original issue discount.
B. redemption value.
C. redemption discount.
D. call premium.

15. You need $25,000 today and have decided to take out a loan at seven percent for five years. Which one of the following loans would be the least expensive? (Assume all loans require monthly payments and that interest is compounded on a monthly basis.)
A. Amortized loan with equal loan payments
B. Interest-only loan
C. Amortized loan with equal principal payments
D. Discount loan

16. What's the future value of a $1,200 investment, earning 10-percent interest per period, after two periods?
A. $1,400
B. $992
C. $1,232
D. $1,452

17. Roy's Welding common stock sells for $48.96 a share and pays an annual dividend that increases by 2½ percent annually. The market rate of return on this stock is 14.6 percent. What's the amount of the last dividend paid? End of exam
A. $4.80
B. $5.78
C. $5.86
D. $4.98

18. Oil Wells offers 6½-percent coupon bonds with semiannual payments and a yield to maturity of 6.94 percent. The bonds mature in seven years. What's the market price per bond if the face value is $1,000?
A. $913.48
B. $902.60
C. $975.93
D. $989.70

19. The common stock of Dayton Repair sells for $43.19 a share. The stock is expected to pay $2.28 per share next year, when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 2.15 percent annually and expects to continue doing so. What's the market rate of return on this stock?
A. 7.28 percent
B. 7.59 percent
C. 7.43 percent
D. 7.67 percent

20. What's the primary reason that the stock market is more volatile than the bond market?
A. Bond markets have more certain cash flows than stocks, and bonds eventually mature, whereas stocks never mature.
B. Stock value isn't based on cash flows but rather the underlying investment.
C. More reporting requirements are placed on the bond markets.
D. Bonds are less susceptible to interest rate changes.