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BA 3303 EXAM 2 - TTU STUDY SET, Exams of Advanced Education

Princeton UniversityAdvanced Education

BA 3303 EXAM 2 - TTU STUDY SET

Typology: Exams

2024/2025

Available from 07/06/2025

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BA 3303 EXAM 2 - TTU STUDY SET
1. For a given interest rate, as the length of time until receipt of the funds increases, the
present value: - Answer A. changes proportionally.
B. increases.
C. decreases.
D. remains unchanged
answer: B
2. A real estate appraiser has advised you that the value of the homes in your
neighborhood has been rising at a compound annual rate of about 6% in recent years.
On the basis of this information, what is the value today of the house you bought 7 years
ago for $119,500? - Answer $179,684
3. Which would you prefer to have: $20,000 today in a lump sum or $1,000 per year for
13 years, beginning one year from now, if interest rates are:
a) 5%
b) 7% - Answer a) 5% - $20,000
b) 7% - 1,000 per year for 13 years
4. You have been shown two different investment options.
Option A will pay you $15,000 at the end of 5 years at a nominal interest rate of 12%
compounded semi-annually.
Option B will pay you $15,000 at the end of 4 years at a nominal interest rate of 10%
compounded quarterly.
Which of the two will require the lowest initial investment and how much will that
investment be? - Answer Option A
5. Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA
account that currently pays 7%. How much will Daniel have in his IRA at the end of the
15 years? - Answer A. $39,981
B. $46,753
C. $49,002
D. $50,258
answer: D
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BA 3303 EXAM 2 - TTU STUDY SET

  1. For a given interest rate, as the length of time until receipt of the funds increases, the present value: - Answer A. changes proportionally. B. increases. C. decreases. D. remains unchanged answer: B
  2. A real estate appraiser has advised you that the value of the homes in your neighborhood has been rising at a compound annual rate of about 6% in recent years. On the basis of this information, what is the value today of the house you bought 7 years ago for $119,500? - Answer $179,
  3. Which would you prefer to have: $20,000 today in a lump sum or $1,000 per year for 13 years, beginning one year from now, if interest rates are: a) 5% b) 7% - Answer a) 5% - $20, b) 7% - 1,000 per year for 13 years
  4. You have been shown two different investment options. Option A will pay you $15,000 at the end of 5 years at a nominal interest rate of 12% compounded semi-annually. Option B will pay you $15,000 at the end of 4 years at a nominal interest rate of 10% compounded quarterly. Which of the two will require the lowest initial investment and how much will that investment be? - Answer Option A
  5. Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA account that currently pays 7%. How much will Daniel have in his IRA at the end of the 15 years? - Answer A. $39, B. $46, C. $49, D. $50, answer: D
  1. What will $153,000 grow to be in 13 years if it is invested today in an account with a quoted annual interest rate of 10% with monthly compounding of interest? - Answer 558,386.
  2. You are planning to retire in 38 years. You currently have $25,000, and would like to have $5 million when you retire. What annual rate of interest would you have to receive on your money in order to reach your goal, assuming you save no more money? - Answer 14.96%
  3. How long does it take for $5,000 to grow into $6,724.44 at 10% compounded quarterly? - Answer A. 2 years. B. 3 years. C. 4 years. D. 30 months. answer: B
  4. There is an attractive piece of undeveloped land that you are considering purchasing. You think in 5 years it will sell for $30,000. What would you pay for it today if you want to earn an compounded annual rate of 12% on your investment? - Answer $17,
  5. The account in which you deposited your inheritance has performed very well and has a current balance of $50,000. The account is credited at 12% compounded annually. If you plan to withdraw from it $7,500 per year beginning one year from now, how long will it be before the balance is zero? - Answer 14 years
  6. Lawson Lawn and Garden invests $5 million to clear a tract of land and to set out some young pine trees. The trees will mature in 10 years, at which time Lawson plans to sell the forest at an expected price of $15.5 million. What is Lawson's expected annual rate of return? - Answer 11.98%
  7. You are planning to retire in 38 years. You currently have $25,000, and would like to have $5 million when you retire. What annual rate of interest would you have to receive on your money in order to reach your goal, assuming you save no more money? - Answer 14.
  8. Suppose you borrow $15,000 to purchase a new car. You take advantage of the manufacturer's special financing offer, and obtain a loan rate of 4.9%. You sign a note requiring you to make 60 equal monthly payments to fully repay the loan. How much is each monthly payment? - Answer 282.
  9. The Tried and True Corporation had earnings of $0.20 per share in 1978. By 1995, a period of 17 years, its earnings had grown to $1.01 per share. What was the compound annual rate of growth in the company's earnings? - Answer 9.99 -> 10%
  10. You plan to borrow $89,000 now and repay it in 5 years. If the annual interest rate is

b. quarterly c. semi-annually d. annually answer: C

  1. A bond's value is the same as its principal amount when the coupon rate is: - Answer A. the same as the required rate of return B. higher than the required rate of return C. lower than the required rate of return D. lower than the inflation rate answer: A
  2. Which of the following constitute default on a bond? - Answer a. nonpayment of par value b. nonpayment of coupon c. violation of the indenture d. all the above answer: D
  3. A speculative (junk) bond issue as rated under Standard & Poor's would be rated ______ or below: - Answer a. AA- b. BBB+ c. B d. BBB- answer: C
  4. In the present value formula, the value or current price should equal what? - Answer A. the present value of expected future cash flows B. the projected cash inflows C. securities issued D. future value answer: A
  5. An example of asset securitization is: - Answer a. a bond backed by credit card

receivables b. a debenture c. a subordinated debenture d. all the above answer: A

  1. Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation? - Answer a. collateralized bonds b. mortgage bonds c. equipment trust certificates d. debenture bonds

answer: D

  1. _________________ is the term for the principal amount that the issuer is obligated to repay at maturity. - Answer A. Security B. Par value C. Perpetuity D. Bearer bond

answer: B

  1. What is the main advantage of owning bonds over stock in a firm? - Answer A. higher returns over time B. voice in the management of the firm C. priority claim on the firm's cash flows and assets D. guaranteed quarterly dividend payments over the life of the bond

answer: C

c. above its par value d. The bond price cannot be determined

answer: A

  1. Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in the event of liquidation. - Answer True
  2. The expected yield on junk bonds is higher than the yield on AAA-rated bonds because of the higher default risk associated with junk bonds. - Answer True
  3. Progressive Corporation issued callable bonds. The bonds are most likely to be called if - Answer A) interest rates decrease. B) interest rates increase. C) Progressive Corporation needs additional financing. D) Progressive Corporation's stock price increases dramatically.

answer: A

  1. Which of the following statements concerning junk bonds is MOST correct? - Answer A) A rational investor will always prefer a AAA-rated bond to a junk bond. B) Junk bonds have higher interest rates than AAA-rated bonds because of the higher risk. C) Junk bonds may also be called low-yielding securities. D) Junk bonds are priced higher than AAA-rated bonds because junk bonds are more risky.

answer: B

  1. Which of the following is true of a zero coupon bond? - Answer A) The bond makes no coupon payments. B) The bond sells at a premium prior to maturity. C) The bond has a zero par value. D) The bond has no value until the year it matures because there are no positive cash flows until then.

answer: A

  1. A company with a AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating. - Answer False
  2. To determine the periodic interest payments that a bond makes, multiply the bond's stated coupon rate by its par value and divide by the number of coupon payments per year. - Answer True
  3. If a bond has a market value that is higher than its par value, then the required return on the bond must be less than the bond's coupon rate. - Answer True
  4. Which of the following affect an asset's value to an investor? I. Amount of an asset's expected cash flow II. The riskiness of the cash flows III. Timing of an asset's cash flows IV. Investor's required rate of return - Answer A) I, II, III B) I, III, IV C) I, II, IV D) I, II, III, IV

answer: D