Time value of money 1. You are able to pay mortgage payments of $800 a month for thirty years. The interest rate is 24 percent, compounded monthly. What price house can you afford to buy if you have $5,000 cash available as a down payment?

Time value of money 2.You are going to receive $6,000 at the end of each quarter for the next five years. What is the net present value of these payments at a discount rate of 8 percent, compounded quarterly?

Time value of money 3.You want to retire on the day you have $300,000 in your savings account. You expect to earn 12 percent, compounded monthly, on your money during your retirement. Your plan is to withdraw $4,500 a month as retirement income from this account. How many years can you be retired until you run out of money?

Time value of money 4. A preferred stock pays annual dividends of $1.75. How much are you willing to pay today to buy one share of this stock if you want to earn a 12.5 percent rate of return?

Time value of money 5.A project will produce cash flows of $6,000, $7,500, $9,000, and $11,000 a year for the next four years, respectively. What is the value of these cash flows today at a discount rate of 8 percent?

Time value of money 6.Today you are opening a savings account and depositing an initial $1,000 into it. You plan to deposit $4,000 into the account one year from today and deposit another $4,000 two years from today. How much will you have in your account ten years from today if you earn an 8 percent rate of return?

Time value of money 7. What is the effective annual rate of - 14 percent compounded semiannually? - 11 percent compounded continuously?

Time value of money 8.You borrow $135,000 for twenty years at 12 percent. This is an amortized loan with monthly payments. How much of the first payment goes to the principle balance of the loan?

Time value of money 9.You just purchased a 15-year annuity at a cost of $70,000. The annuity will pay you $1,050 at the end of each month, starting with this month. What nominal rate of return are you earning on this investment?

Time value of money 10. Marie needs $26,000 as a down payment for a house 4 years from now. She earns 5.25 percent on her savings. Marie can either deposit one lump sum today for this purpose or she can wait a year and deposit a lump sum. How much additional money must Marie deposit if she waits for one year rather than making the deposit today? 

Time value of money 11. John and Peggy recently bought a house, and they financed it with a $125,000, 30-year mortgage with a nominal interest rate of 6 percent. Mortgage payments are made at the end of each month. What portion of their mortgage payments during the first three years will go towards repayment of principal?

Bonds 12.TES, Inc. offers a 7 percent bond with a yield to maturity of 8 percent. The bond pays interest annually and matures in 19 years. What is the market price of one of these bonds if the face value is $1,000?

Bonds 13.Signature Sweets, Inc. has 9 percent semiannual bonds outstanding with 18 years to maturity. The latest quote on these bonds is $917.27. What is the yield to maturity?

Bonds 14. A zero coupon bond has a yield to maturity of 8 percent and 10 years until it fully matures. What is the current price of this bond if the face value is $1,000?

Bonds 15.An annual, fourteen-year bond is currently selling for $863.74 and has a yield to maturity of 9 percent. What is the coupon rate of this bond if the face value is $1,000?

Bonds 16. The bonds of XYZ, Inc. are currently quoted at $1,014.5 and mature in 9 years. The bonds pay a $35 semiannual coupon. What is the current yield on these bonds?

Bonds 17.Assume that you are considering the purchase of a $1,000 par value bond that pays interest of $70 each six months and has 10 years to go before it matures. If you buy this bond, you expect to hold it for 5 years and then to sell it in the market. You (and other investors) currently require a nominal annual rate of 16 percent, but you expect the market to require a nominal rate of only 12 percent when you sell the bond due to a general decline in interest rates. How much should you be willing to pay for this bond?  a. $ 842.00 b. $1,115.81 c. $1,359.26 d. $ 966.99 e. $ 731.85  

Stock valuation 18.The common stock of Andy’s Sporting Goods sells for $25.40 a share. The company recently paid their annual dividend of $1.30 per share and expects to increase this dividend by 3 percent annually. What is the rate of return on this stock? a. 5.12 percent b. 5.27 percent c. 8.12 percent d. 8.27 percent   19. The Black & Gold Co. is expected to pay a $2.50 annual dividend next year. The market rate of return on this security is 12 percent and the market price is $31.40 a share. What is the expected growth rate of Black & Gold? a. 3.74 percent b. 3.89 percent c. 4.04 percent d. 4.12 percent

Stock valuation 20.Battles, Inc. just paid an annual dividend of $1.20 a share. The dividend will increase by 3 percent for the next three years and then increase by 2 percent annually thereafter. What is the present value of this stock at a discount rate of 9 percent? a. $17.97 b. $18.52 c. $21.68 d. $22.33   21.Bottle Top, Inc. recently announced they will pay their first annual dividend next year in the amount of $0.75 a share. The dividend will be increased by 4 percent annually thereafter. How much are you willing to pay for one share of this stock if you require a 10 percent rate of return? a. $12.50 b. $13.83 c. $21.58 d. $22.91

Stock valuation 22.The common stock of the Paper Co. is selling for $41.40 a share and offers an 8.2 percent rate of return. The dividend growth rate is constant at 4 percent. What is the expected amount of the next dividend? a. $1.67 b. $1.74 c. $1.81 d. $1.90   23.The Ward Co. has 500,000 shares of stock outstanding with a market price of $37.59 a share. The company has three open positions on their board of directors. You want to assure yourself of winning one of those seats assuming that no one else votes for you. The company uses cumulative voting. How much will it cost you to purchase sufficient shares to ensure your election assuming that you currently do not own any shares? a. $3,571,088 b. $4,698,788 c. $5,137,338 d. $6,265,038

Stock valuation 24. J&J Exporters paid a $1.80 per share annual dividend last month. The company is planning on paying $2.00, $2.50, $2.75, and $3.00 a share over the next four years, respectively. After that the dividend will be constant at $3.20 per share per year. What is the market price of this stock if the market rate of return is 13 percent?  Answer:$22.57