Future value is the amount that will result from the investment of a sum of money today at a certain rate of return for a certain period of time. (True/False)
The present value of a $100,000 lump paid one year from today is?
(a) $100,000 (b) less than $100,000 (c) More than $100,000 (d) need more information
The present value in a 30-year mortgage loan calculation is the:
Total amount of payments required over the 30-year period
Original Loan principal balance
Total Interest to be paid over the 30-year period
Interest Rate
The present value of $100,000 to be paid one year from today will be greater if the appropriate discount rate is 8% than if the appropriate discount rate is 5%. (True/False)
If you want to buy a publicly traded $10,000 bond with a 6% nominal interest rate but the market rate for the same bond today is 5% then you will have to pay:
Less than $10,000
More than $10,000
exactly $10,000
need more information
The legal agreement (contract) that governs the relationship between an issuing company and bondholders is a(n)?
Debenture
Indebtedness
Contract
If a bond has a face amount of $10,000, annual interest payments at a rate 6% and a term of 10 years, the present value of the required payments of principal and interest under the bond is equal to? (Hint: Calculate for PV)
Would you expect the rate of return required by investors to be greater for "junk" bonds or highly rated corporate bonds? And why?
The price-to-earnings (P-E Ratios) of different companies can be compared with each other? (True/False)
In a corporation, who determines whether the shareholders will receive dividend distributions and if so, how much?
Board of Shareholders
Board of Directors
Management
Employees
If you invest a lump sum at a rate of return of 10% will you be better of (in terms of total future value) if you invest it today or if you wait until 7 years from now?
Other thing s be equal, what would you consider to be the least risky investment?
5-year corporate bond (c) common stock
Preferred stock (d) 3-year Treasury Security
Which of the following ratio deals directly with a company's ability to meet its current obligations?
Profitability ratios
Market Ratios
Liquidity Ratios
Inventory Turnover ratios
You need to save $37,000 over the next 15 years to fund your 3-year-old daughter's college education. If you made equal annual end-of-year deposits into an account that earns 7% annual interest, how large must this deposit be? (HINT: PV=O, Solve for PMT)
Assume that you deposit $10,000 today into an account paying 6% annual interest and leave it on deposit for exactly 8 years. a. How much will be in the account at the end of 8 years in interest is compounded:
Annually
Semi-Annually
Monthly
If you invest a lump sum of $2,750 today in an account that pays 6% annual interest and leave the funds on deposit for exactly 15 years what is future value? (HINT: PMT=O, Solve for FV)
If you invest $1,200 at the end of each year for the next 10 years in an account that pays 10% annual interest, determine the future value at the end of year 10.
Make the same investment as in investment in problem 26 but place the $1,200 in the account at the beginning of each year.
J. Ross and Sons, Inc has a target capital structure that calls for 40% debt, 10% preferred stock and 50% common equity. The firms current after-tax cost of debt is 6% and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share, however, the firm will only net $80 per share from the sale of the new preferred stock. Ross expects to retain $15,000 in earnings over the next year. Ross' common stock currently sells for $40 per share, but the firm will only next $34 per share from the sale of the new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10% per year.
What is the Cost of Capital for Preferred Stock?
What is the cost of capital for Common Stock?