problem1.  Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment?

A) $500.92
B) $543.79
C) $563.82
D) $597.24

problem2.  It is your 6th birthday today. You have a trust fund with $50,000 that is earning 8% per year. You expect to withdraw $30,000 per year for 7 years starting on your 22nd birthday for graduate school. How much money will be left in the trust fund after your last withdrawal (rounded to the nearest $10)?

A) $125,660
B) $35,780
C) $4,140
D) You will not have enough money to pay for graduate school.

problem3. Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make?

A) 15
B) 13
C) 12
D) 19

problem4. What is the present value of an annuity of $4,000 received at the beginning of each year for eight years? The first payment will be received today, and the discount rate is 9% (round to nearest $1).

A) $36,288
B) $35,712
C) $25,699
D) $24,132

problem5. It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the end of the 40th year? Assume that the account pays 12% interest compounded annually and round your answer to the nearest $1000.

A) $93,000
B) $766,000
C) $767,000
D) $850,000

problem6. Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much must Charlie invest today in order to have his retirement annuity (round to nearest $10)?

A) $167,130
B) $200,450
C) $256,890
D) $315,240

problem7. Assume that you have $330,000 invested in a stock that is returning 11.50%, $170,000 invested in a stock that is returning 22.75%, and $470,000 invested in a stock that is returning 10.25%. What is the expected return of your portfolio?

A) 15.6%
B) 12.9%
C) 18.3%
D) 14.8%

problem8. Investment A has an expected return of 14% with a standard deviation of 4%, while investment B has an expected return of 20% with a standard deviation of 9%. Therefore

A) A risk adverse investor will definitely select investment A because the standard deviation is lower.
B) A rational investor will pick investment B because the return adjusted for risk (20% - 9%) is higher than the return adjusted for risk for investment A ($14% - 4%).
C) It is irrational for a risk-averse investor to select investment B because its standard deviation is more than twice as big as investment A's, but the return is not twice as big.
D) Rational investors could pick either A or B, depending on their level of risk aversion.

problem9. The investor is worried that the beta of his portfolio is too high, so he wants to sell some stock C and add stock D, which has a beta of 1.0, to his portfolio. If the investor wants his portfolio to have a beta of 1.72, how much stock C must he replace with stock D?

A) $18,000
B) $24,000
C) $31,000
D) $36,000

problem7. LRQ Inc. sold bonds on July 1, 2006. The bonds had a coupon rate of 5.5%, with interest paid semi-annually. The face value of the bonds is $1,000 and the bonds mature on July 1, 2021. What is the intrinsic value of an LRQ Corporation bond on July 1, 2012 to an investor with a required return of 7%?

A) $901.08
B) $902.27
C) $1,000.00
D) $1,104.28

problem8. Andre owns a corporate bond with a coupon rate of 8% that matures in 10 years. Ruth owns a corporate bond with a coupon rate of 12% that matures in 25 years. If interest rates go down, then

A) The value of Andre's bond will decrease and the value of Ruth's bond will increase.
B) The value of both bonds will increase.
C) The value of Ruth's bond will decrease more than the value of Andre's bond due to the longer time to maturity.
D) The value of both bonds will remain the same because they were both purchased in an earlier time period before the interest rate changed.

problem9. Assume that Bunch Inc. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest penny.

A) $1,233.79
B) $1,201.32
C) $1,134.88
D) $1,032.56

problem10. Master Craft Control Inc. has bonds that mature in 6 1/2 years with a par value of $1,000. They pay a coupon rate of 9% with semi-annual payments. If the required rate of return on these bonds is 11% what is the bond's value?

A) $1,026.73
B) $973.76
C) $1,022.74
D) $908.83