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problem1: Accounts Receivable decreases when:

[A] Customers pay for goods previously purchased on credit

[B] A payment is made for goods purchased on credit

[C] Goods are sold on credit

[D] Goods are purchased on credit

problem2: Three year treasury securities yield 5%, 5 year treasury securities yield 6%, and 8 year treasury securities yield 7%. If the expectations theory is correct, what is the expected yield on 5 year Treasury securities three years from now?

[A] 6.71%

[B] 8.22%

[C] 5.09%

[D] 7.00%

[E] 6.03%

problem3: Which of the following statements is INCORRECT about bonds? In all of the statements, assume other things are held constant.

[A] For any given maturity, a given percentage point increase in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.

[B] From a borrower’s point of view, interest paid on bonds is tax-deductible.

[C] Price sensitivity, that is, the change in price due to a given change in the required rate of return, increases as a bond’s maturity increases.

[D] For a given bond of any maturity, a given percentage point increase in the interest rate (rd) causes a larger dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.

[E] A 20 year zero coupon bond has less reinvestment rate risk than a 20 year coupon bond.

problem4: Matteo Toys has 9% annual coupon, $1,000 face value bonds outstanding that mature in ten (10) years. However, the bonds can be called before maturity at a call price of $1,050. The bonds have a yield to call of 6.5% and a yield to maturity of 7.4 percent. How long until these bonds may 1st be called?

[A] 3.68 years

[B] 5.37 years

[C] 6.32 years

[D] 2.21 years

 

[E] 3.16 years

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