17 EXAMINATION QUESTIONS ON FINANCE : TVM :.

**1.You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays $30 every six months. The current market interest rate is 8%. What is the most you would be willing to pay for this bond?**

**2. In January, 1998, Harold Black bought 100 shares of Country Homes for $37.50 per share. He sold them in January, 2008 for a total of $9,715.02. Calculate Harold’s annual rate of return.**

**3. Samuel Johnson invested in gold U.S. coins ten years ago, paying $216.53 for one-ounce gold “double eagle” coins. He could sell these coins for $734 today. What was his annual rate of return for this investment?**

**4. Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12% over that three-year period, how much would he have to invest now in order to accumulate $80,000 at the end of the three years?**

**5. Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for ten years at 12% and will be repaid in equal quarterly installments. What will the quarterly payments be?**

**6. Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years following her retirement. Her financial advisor thinks she can earn 9% annually. How much does she need to invest each year to prepare for her financial needs after her retirement?**

**7. Sara Shouppe has invested $100,000 in an account at her local bank. The bank will pay her a constant amount each year for 6 years, starting one year from today, and the account’s balance will be 0 at the end of the sixth year. If the bank has promised Ms. Shouppe a 10% return, how much will they have to pay her each year?**

**8.The Swell Computer Company has developed a new line of desktop computers. It is estimated that the cash returns generated by the new product line will be $800,000 per year for the next five years, and then $500,000 per year for 3 years after that (the cash returns occur at the end of each year). At a 9% interest rate, what is the present value of these cash returns?**

**9.Kimberly Ford invested $10,000 10 years ago at 16 percent, compounded quarterly. How much has she accumulated?**

**10. Sponge Bob will receive a payment of $5,000 per year for 7 years beginning three years from today. At a discount rate of 9 percent, what is the present value of this deferred annuity?**

**11. Fullerton Company’s bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10% coupon rate and will mature in 10 years. What is the approximate yield to maturity?**

**12. Madison Corporation has a $1000 par value bond outstanding paying annual interest of 7%. The bond matures in 20 years. If the present yield to maturity for this bond is 9%, calculate the current price of the bond using annual compounding. Use annual analysis.**

**13. Corporation has a $1000 par value bond outstanding paying annual interest of 8%. The bond matures in 20 years. If the present yield to maturity for this bond is 10%, calculate the current price of the bond. Use annual analysis**

**14. The preferred stock of Gapers Inc. pays an annual dividend of $6.50. What is the price of the preferred stock if the required return is:**

**a)**

**6%**

**b)**

**8%**

**c)**

**10 %**

**15. The preferred stock of Lewis-Schultz Enterprises pays an annual dividend of $6.00. What is the required return if the market value of the preferred stock:**

**a)60%**

**b)70%**

**c)80%**

**16. State Street Corp. will pay a dividend on common stock of $4.80 per share at the end of the year. The required return on common stock (Ke) is 13.2%. The firm has a constant growth rate of 7.2%. Compute the current price of the stock (Po).**

**17. Simon Fixtures Corp. is expected to pay $2.00 per share in dividends at the end of the next 12 months. The growth rate in dividends is expected to be constant at 8% per year. If the stock is selling for $50 per share, what is the required rate of return?**