Question Details

How much extra will you have at the end of the year 



1.	Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today.  What rate of return is built into the annuity?  Disregard taxes.

a.	7.12%
b.	7.49%
c.	7.87%
d.	8.26%
e.	8.67%
	
2.	Which indenture provision may affect the price of the bond differently? 

a.	convertibility
b.	sinking fund
c.	call
d.	restrictions on dividends
e.	collateral

3.	Suppose 1-year Treasury bonds yield 4.00% while 2-year T-bonds yield 4.80%.  Assuming the pure expectations theory is correct, what is the yield on a 1-year T-bond expected to be one year from now?

a.	5.61%
b.	5.72%
c.	6.22%
d.	5.44%
e.	6.11%
	
4.	Which of the following factors would be most likely to lead to an increase in nominal interest rates?

a.	Households reduce their consumption and increase their savings.
b.	A new technology like the Internet has just been introduced, and it increases investment opportunities.
c.	There is a decrease in expected inflation.
d.	The economy falls into a recession.
e.	The Federal Reserve decides to try to stimulate the economy.
	
5.	You are comparing saving $100 every month for a year vis-à-vis $1,200 at the beginning of the year. How much extra will you have at the end of the year by saving $ 1,200 at the beginning of the year instead of saving $100 each month at the end of each month. Use 6% interest rate.

a.	$35.51   
b.	$38.44
c.	$60.90
d.	$63.90
e.	$76.71



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