Multiple Choice Answers

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1. What is the present value of $3,000, discounted at 8 percent interest per period, for two periods? (Round your answer to the nearest cent.)
A. $2,777.78
B. $2,572.02
C. $3,499.20
D. $3,240.00

2. The stated interest payment made on a bond is called the
A. yield to maturity.
B. maturity.
C. face value.
D. coupon.

3. An ordinary annuity of $500 per period, discounted at a rate of 8 percent per period for 3 periods, has a present value of $1,288.55. If this same annuity was an annuity due, what would its present value be? (Round your answer to the nearest cent.)
A. $1,288.55
B. $1,500.00
C. $1,391.63
D. $1,788.55

4. The relationship between real returns, nominal returns, and inflation is commonly referred to as the
A. dirty price.
B. Fisher effect.
C. Treasury yield curve.
D. bid-ask spread.

5. On an investment of $2,000, you’ll earn 10 percent interest per year compounded semiannually. What is the future value of this investment after one year?
A. $2,205
B. $2,100
C. $2,420
D. $4,500

6. What is the future value of a $10,000 investment, earning 12 percent interest per period, after three periods? (Round your answer to the nearest cent.)
A. $7,117.80
B. $11,200.00
C. $12,544.00
D. $14,049.28

7. Where does most bond trading occur?
A. At the corporate headquarters of Moody’s
B. In the New York Stock Exchange (NYSE)
C. Electronically, over the counter
D. At the corporate headquarters of Standard

8. Suppose that you buy a $5,000 bond with a 12 percent annual coupon, payable semiannually on January 1 and July 1. On both January 1 and July 1, the bondholder will receive $300, for a total annual interest payment of $600 ($300 + $300). Based on the principal and accrued interest only, how much would you expect to pay to purchase this bond on May 1?
A. $5,200
B. $5,000
C. $5,300
D. $5,600

9. Today, you deposit $1,000 into an account that pays 12 percent interest annually. How much will you have in the account after 4 years? (Round your answer to the nearest cent.)
A. $635.52
B. $1,254.40
C. $1,120.00
D. $1,573.52

10. A type of loan that’s paid off by making regular principal reductions, usually according to a specified schedule, is called a(n)
A. annuity due.
B. debenture.
C. amortizing loan.
D. corporate bond.

11. What is the present value of the right to receive four equal payments (ordinary annuity) of $500 per period, discounted at a rate of 10 percent per period? (Round your answer to the nearest cent.)
A. $341.51
B. $454.55
C. $1,584.94
D. $732.05

12. On an initial investment of $1,000, you can earn 12 percent interest per year compounded annually, or 12 percent interest per year compounded semiannually. Which of the following statements is correct?
A. 12 percent per year, compounded annually, is the better interest rate for the investment.
B. 12 percent per year, compounded semiannually, is the better interest rate for the investment.
C. There’s no difference between the two interest rates; both rates will produce the same future value.
D. It isn’t possible to determine the future value of this investment based on the information provided.

13. The payments made by a corporation to shareholders, either in cash or in stock, are called
A. dividends.
B. capital gains.
C. cash flows.
D. bond yields

14. What is the future value of a $1,500 investment, earning 10 percent interest per period, after two periods? (Round your answer to the nearest cent.)
A. $1,650.00
B. $1,363.63
C. $1,815.00
D. $1,239.67

15. A stock’s expected cash dividend divided by its current price is called the
A. dividend yield.
B. capital gains yield.
C. constant growth.
D. ask price.

16. Today, you deposit $6,000 into an account that pays 10 percent annually. In one year, you’ll deposit another $4,000 in the account. How much will you have in the account after two years?
A. $10,600
B. $11,660
C. $10,000
D. $11,000

17. What is the present value of $2,200, discounted at 10 percent interest per period, for one period? (Round your answer to the nearest cent.)
A. $2,420.00
B. $2,000.00
C. $1,818.18
D. $1,980.00

18. Which of the following statements about stock trading is correct?
A. The NASDAQ is a computer network, with no physical location for trading.
B. The number of NYSE exchange members is unlimited.
C. The NASDAQ uses a specialist system for actively traded stocks.
D. The NYSE does not have a physical location for stock trading activities.

19. You want to invest money for 3 years in an account that pays 7 percent interest annually. How much would you need to invest today to reach a future goal of $5,000? (Round your answer to the nearest cent.)
A. $4,650.00
B. $6,125.22
C. $4,762.90
D. $4,081.49

20. What is the present value of the right to receive four equal payments (annuity due) of $1,000 per period, discounted at a rate of 10 percent per period? (Round your answer to the nearest cent.)
A. $1,909.09
B. $3,486.85
C. $1,464.10
D. $2,486.85