Memorial University of Newfoundland & Labrador
Faculty of Business Administration
Corporate Financial Management B4500
TEST # 1 (Winter 2022)
Name:
Student Number:
.There
are
35-MC
(Multiple Choice) problem solving
questions. Answer each direct (circle) on this
paper with your *best choice*. This paper must be
returned for grading.
You have 75-minutes to
complete this
exam.
Use space providedfor calculations; only MC
answers are corrected. Workings are not marked.
.You may use a Financial Calculator and a Formula
Sheet. (Formula Sheet is 8.5 x 11 and may be
written up on two sides.)
Michael wishes to pay off his $200,000 mortgage, as quickly as possible,
and has arranged for weekly payments. Michael's Bank has offered him
4% on a 5-year term with a 25-year amortization.
solve the next four questions.)
1.
What is the periodic rate?
0.0777
(c)0.0762
2.
53425
1300D
r-APRsA 4.009 toy
a) 0.4000
uy 0.0769
t
(Use this infomation to
peviod
r*
3.1620/5a
=
.o7b2
What is the mortgage payment?
.0762
(al)
$242
b) $255
t
c) $259
d) $275
130o
PMT
42.48
PV-900p00
3.
How much does Michael owe on his mortgage at renewal in 5-years?
t 0 x S2- ljo¥o
a) $172,990
PHT
b) $156,509
174,109
22.48
076
d) $176,908
4.
A 52 =3
PU 17 lo9-13
If Michael now wishes to pay off his remaining balance in 10 years, and
assuming the rate stays the same, how much is his new payment?
( )s406
b) $419
c) $426
d) $482
t
10x Sa 520
PV
I74,/09.137
.
07b
MT- FtoS.66
5
Clouston Corporation (CC) bonds bear a coupon rate of 15%, pay coupons semi-
annually, have two years remaining to maturity, and
are
currently priced at $980
per bond. What is the yield to maturity?
a
b)
15o (50 775
t 2x2
PV- 980
8.11%
8.98%
C
16.21%
16.45%
FVlOObo
81l xa
JTH=
=
16-21%
6. Clouston Corporation (CC) bonds are currently selling for $1,041.30. These
bonds mature in 7-years, pay semi-annual interest, and have a yield to maturity
of 6.75%. What is the coupon rate?
6.75%
a)
7.00%
b)
PV 10130
7.25%
()
7.50%
t
2%
STH
/4
6-7S/a 3 . 3 8
C 37-55
x2
75. lo
7.51%
1.50
7.
7.
The yield to maturity on a discount bond is
a)
b)
equal to the coupon rate.
greater than the coupon rate.
c)
less than the coupon rate.
d)
less than the current yield
SP
YTM
8
Today, Heidi is investing $30,000 at 6%, compounded annually, for 4 years. How
much additional income could she earn if she had invested this amount at
compounded annually?
V
a)
$1,043
b)
$1,256
c)
$1,401 oooo
O-
FV 39,325.88
$1,450
-4
FV 37,974.31
449.57
99.
10.
Clouston Corporation (CC) needs to raise funds to finance a plant expansion, and
CC has decided to issue 25-year zero coupon bonds to raise the money. The
required rate on the bonds will be 9%. What will these bonds sell for at issuance?
a)
$100.00
CO
(b)
$115.97
t 25
c)
$900.00
d)
$1,000.00
yTM
FV
PV= I1S.97
1OOO
You have just found a 7% coupon bond on the market that sells for par value.
What is the maturity on this bond?
The bond must mature in one year.
b)
The bond could have any maturity date.
c)
The bond must mature in ten years.
d)
None of these are correct.
11.
Which one of the following bonds is the "least"sensitive to changes in market
interest rates?
a)
6% coupon rate; 10 years
8% coupon rate; 4 years
12
c)
8% coupon rate; 10 years
d)
6% coupon rate; 4 years
Tvahe + Hm
A 10-year bond has a "Globe& Mail" Newspaper quoted price of $104.50,
J this bond pays interest payments of $80 every year. What is the
Coupon Rate? What is this bond's yield?
a)
7.66%; 7.35%
b)
7.12%; 7.50%
8.00%; 7.35%
d)
8.00%; 8.00%
N lo45 o o
1ot5o
PV
C 80 N 3>Loyonvake
fV |OC0o
t
1o
yTM T:35 %
13.
A 5.5% bond matures in seven years, pays interest semi-annually, and has a
yield to maturity of 6.23%. What is the current market price of this bond?
(Hint: use 4-decimel places to get the best result.)
a)
$945.08
b)
$947.21
)
$959.09
$962.64
C 5.50
t
TM 62
5S
27. So
3.1tS
FV lOCDo
PV 95969
14.
Clouston Manufacturing wants to raise $1 million by selling some coupon bonds
at par. Comparable bonds in the market have a 6.5% annual coupon, 15 years
to maturity, and are selling at 98% of par. What coupon should this company set
on its bonds?
a)
6.48%
b)
6.50%
c)
6.67%
(d)
6.72%
Nes Brdy
SP
Comparae
c
FV-PV= IOvD
6S
t
wLee
IS
PV= 93O
tuD
FU= loc0
YTH 672
15.
Clouston Engineering invested $110,000 at 6.5%, compounded annually for 4
years. How much interest on interest did the company earn over this period?
a)
$2481.25
O-
b)
$2,911.30 IIO,000
c)
$3,014.14
d)
$3,333.33
r-65
/4l,511-30
X. D65 xf
Oimple Ind = lio,ooo
23, boo
16
Totuo ll
éannes
3/,5/1 3d
ker 281600 00
The 6% coupon bonds of Clouston Consulting Corporation are selling for 98% of
par value. The bonds mature in 8 years and pay interest semi-annually. These
bonds have a yield to maturity of
a)
.32
b)
6.36
c)
3.42
d)
3.16
P
percent.
inkerao
930
C 6 o b o N3o
t
g2
16
FV Oco
YTM
3.16 xa = 632
17. C &CManufacturing just issued a bond paying 7%. Ifthe bond has a life of 30
years, pays annual coupons, and the yield to maturity is 6.8%, what will the bond
sell for?
a
b)
$1,000
$1,025
$1,087
d)
$1,111
C 79o n 70
t- 30
yTM 8
fV 1000o
PV 1o25.32
18. The market price of a bond is $1,236.94. This bond has 14-years to maturity and
pays an annual coupon of $101. What is the yield to maturity?
3.18%
a)
4.26%
b)
7.25%
7.34%
d)
PV
1236.94
t)
C
O)
fV looO
yTH 7:34 %
19.
Clouston Consulting Corporation bonds sell for $1,003.17. These bonds mature
in 3-years, pay interest annually, and have a yield to maturity of 6.63%. What is
the coupon rate?
6.50%
a)
b)
d
6.60%
6.63%
6.75%
PV lod3 17
t3
YTM 66
fV
looo
C
67.5So
6-75%
0
250qcobd
20. Fresh out of university, you are negotiating with your prospective new
employer. They offer you a signing bonus of $2,000,000 today or a lump
sum payment of $2,500,000 three years from now. If you earn 7% on your
invested funds, which of the following is true?
a)
c
d)
Take the signing bonus because it has the higher present value.
Take the signing bonus because it has the higher future value.
Take the lump sum because it has the higher present value.
Take the lump sum because it has the lower future value.
9pto,745 <
Bedo Jalhov
21. Sarah needs to borrow $16,000 for 3-years. The loan wil Be repaidin one lump
sum at the end of the loan term. Which one of the following interest rates is best for
Sarah?
a) 8% simple interest
D
8% compounded annually
c) 8% compounded daily ho loohing vw chezpesl
d)
22
8% compounded quarter
Suppose you take out a $10,000 loan at a 6% nominal annual rate. The terms of
the loan require you to make 12 equal end-of-month payments each year for 4
years, and then an additional final (balloon) payment of $4,000 at the end of the
last month. What will your equal monthly payments be?
a)
$137.96
b)
$145.22
$152.86
$160.91
23.
peryhet
Peybenuuauy
grorn
0pevads
r-
fa-
.50
balleor PMT= FV=¥ooo
Solve tv PnT ¢l6o-9/
-
You just received your inheritance, and you want to set-upa scholarship at
Memorial University's Faculty of Business. The first payment will be next year.
You would like to see this payment at $1,000. MUN is able to invest all ofits
scholarly funds at 4%. Further, you would like your scholarship to increase each
year by 1%. How much of your inheritance must you give to MUN to get your
scholarship set-up?
a)
$10,000
b)
$20,000
c)
$25,000
$33,333
P PMT
O4-0
33,333-33
24. A 15-year bond with a face value of $1,000 currently sells for $850. Which
statement regarding the bond's yield is true?
The bond's coupon rate exceeds its current yield.
a)
The
bond's current yield exceeds its yield to maturity.
b
PUU, yTH
The bond's yield to maturity is greater than its coupon rate.
The bond's current yield is equal to its coupon rate.
25.
A 12-year bond has an annual coupon rate of 9%. The coupon rate will remain
fixed until the bond matures. The bond has a yield to maturity of 7%. Which
statement regarding the bond's price is true?
a)
If market interest rates decline, the bond price wil also decline.
6)
The bond is currently selling at a price below its par value.
PV
The bond is currently selling at a price above its par value.
d)
The bond is currently seling at par.
t 12
as
C 990 yTMV;SPI
YTH= 7
26.
Congutis
to
Sove:
tosove
27.
At 10% interest, how long does it take to quadruple your money?
a)
14.30 years
b)
14.55years
C)
15.11 years
d)
15.36 years
Soleavt
O
t
1455
The yield to maturity on a premium bond is
a)
equal to the coupon rate.
b)
greater than the coupon
rate.
less than the coupon rate.
d)
yTMT
equal to the current yield.
sP; yTM
28
You are considering two insurance settlement offers. The first offer includes
annual payments of S5,000, $7,500, and $10,000 over the next three years,
respectively. The other offer is the payment of a lump sum amount today. You
are trying to decide which offer to accept given the fact that your discount rate is
5%. What is the minimum amount that you will accept today if you are to select
the lump sum offer?
a
v2-
$19,878
b) }$20,203
Soo
SovD
$21,213
d) $23,388
-3
PV 20,203-00
29. You want to borrow $2,500 from your recently graduated Bachelor of Commerc
brother. He offers you the "special family" rate of 1% per week. What is the APR and
the EAR on this loan from your brother?
a ) 52%; 52%
b)52%; 67.77%
)52%; 60.10%
APR 1o
x
$2
52%
d) 67.77%; 52%
EAR 67.97%
30. Mr. Brown has just borrowed from Mr. Black. Mr. Brown has agreed to pay Mr.
Black $300 in one week, $400 in two weeks, and $500 in three weeks. f th
interest rate is 1% per week, what is the future value of this payment stream?
(a)$1,210 v
$1,225
c) $1,178
d) $1,190
-2
O
300
30
703
-3
SoO
710:03
31. Ms. Clouston has just graduated from Memorial. She owes $67,000 in studenf
loans. She has 10 years to pay off her student loans at 8% interest. How much
must Ms. Clouston pay each year?
a) $4,625
b) $6,700
c$5,859 67,000
(d) $9,985
PT 9,18498
32. Present value of a future amount increases when the time horizon
and/or the discount rate
a) increases; increases
b) increases; decreases
c decreases; increases
d) decreases; decreases
33
The primary goal of a company's management is the maximization
of which of the following?
b
reported profit
b
c)
fundamental share price
market share
d)
personal wealth
34. What's the rate of return, if you paid $950 for a perpetuity that pays s85 per
(Hint: use 4-decimel places to get the best result.)
year?
a
8.90%
b)
9.25%
8.95%
c)
PMT
85
950
9.84%
35. Present Value
apecreases
b)
increases
as required rate increases
as
required
rate increases
c)is directly related to the discount rate
d)
is unaffected
by the timing of cash flows
PVU vT
-
8:95%