Question 1

Consider a coupon bond that pays $105 every year and repays its principal amount of $1,500 at the end of 3 years.If the annual rate of discount is 7 percent, the present value of the bond is approximately

Accepted Answer

The answer of Consider a coupon bond that pays $105...

Question 2

​Which of the following statements is true of a perpetuity?

Accepted Answer

The answer of ​Which of the following statements is true...

Question 3

Consider a three-year fixed-payment security that has a present value of $1,000.If the annual rate of discount is 7 percent, the payment made at the end of each year is

Accepted Answer

The payment made at the end of each year can be found using the formula for the present value of an annuity: $PV = PMT \times \left[\frac{1 - (1 + r)^{-n}}{r}\right]$, where PV is the present value ($1,000), PMT is the annual payment, r is the annual discount rate (0.07), and n is the number of periods (3 years). Rearranging the formula to solve for PMT gives $PMT = \frac{PV}{\left[\frac{1 - (1 + r)^{-n}}{r}\right]}$. Substituting the given values and solving for PMT yields approximately $381.05.

Question 4

The difference between the present value of a perpetuity that pays $250 every year and a perpetuity that pays $500 every year when the annual rate of discount is 5% is

Accepted Answer

The present value of a perpetuity is calculated using the formula PV = P / r, where P is the payment per period and r is the discount rate. For the $250 perpetuity, PV = $250 / 0.05 = $5,000. For the $500 perpetuity, PV = $500 / 0.05 = $10,000. The difference is $10,000 - $5,000 = $5,000.

Question 5

Consider a five-year fixed-payment security that has a present value of $1,500.If the annual rate of discount is 2 percent, the payment made at the end of each year is

Accepted Answer

The answer of Consider a five-year fixed-payment security that has...

Question 6

A debt security that pays interest forever and never repays the principal is a

Accepted Answer

A debt security that pays interest forever and never repays the principal is called a perpetuity. Fiduciary obligations refer to legal or ethical responsibilities that one party holds for another, federal funds loans are short-term loans between financial institutions, and junk bonds refer to high-risk, high-yield debt securities.

Question 7

After amortizing the principal, a debt security that makes the same dollar payment every year is referred to as a

Accepted Answer

A debt security that makes the same dollar payment every year, after amortizing the principal, is referred to as a fixed-payment security. Choice A, a coupon bond, typically makes periodic interest payments and pays the principal at maturity. Choice C, a discount bond, is sold below its face value and pays the face value at maturity. Choice D, a perpetuity, pays a fixed amount at regular intervals forever, without any maturity date.

Question 8

Which of the following statements is true?

Accepted Answer

The present value of a perpetuity is calculated by dividing the annual payment by the discount rate, which means it varies directly with the annual payments. The more the annual payment, the higher the present value of the perpetuity.

Question 9

The process in which the principal amount of a security is repaid gradually over time is referred to as

Accepted Answer

Amortization refers to the process of repaying the principal amount of a security gradually over time, typically through a series of fixed payments. This is commonly seen in the context of loans, where the borrower makes regular payments that consist of both principal and interest. Securities such as bonds may also be structured with an amortization schedule, in which a portion of the principal is repaid with each interest payment. Securitization refers to the process of pooling together similar assets and issuing securities that are backed by these assets. Depreciation and discounting are not relevant to the concept of repaying the principal amount of a security over time.

Question 10

Consider a perpetuity that pays $100 every year.If the annual rate of discount is 7 percent, the present value of the perpetuity is

Accepted Answer

The present value of a perpetuity can be calculated as the annual payment divided by the discount rate. Therefore, the present value in this case is $100 divided by 0.07, which equals $1,428.57. Choice C is the answer.

Question 11

The present value of a perpetuity that pays $F every year when the annual rate of discount is i is

Accepted Answer

The present value of a perpetuity (an infinite series of payments) is calculated as the payment amount ($F) divided by the discount rate (i), which is represented by the formula F/i.

Question 12

Consider a coupon bond that pays $100 every year and repays its principal amount of $1,000 at the end of 10 years. If the annual rate of discount is 10 percent, the present value of the bond is approximately

Accepted Answer

The answer of Consider a coupon bond that pays $100...

Question 13

​Consider a fixed­payment security that pays $100 at the end of every year for five years.If the annual rate of discount is 7 percent, the present value of the security is

Accepted Answer

The present value of a fixed-payment security (also known as an annuity) can be calculated using the formula for the present value of an annuity: PV = P * [(1 - (1 + r)^-n) / r], where P is the payment per period, r is the discount rate per period, and n is the number of periods. Plugging in the values given: P = $100, r = 0.07, and n = 5, we get PV = $100 * [(1 - (1 + 0.07)^-5) / 0.07] ≈ $410.02.

Question 14

Consider a perpetuity making one payment each year that has a present value of $1,500.If the annual rate of discount is 3 percent, the annual payment is

Accepted Answer

The formula for the present value of a perpetuity is PV = PMT / r, where PV is the present value, PMT is the annual payment, and r is the annual rate of discount. Using this formula, we can solve for PMT: 
$1,500 = PMT / 0.03 
PMT = 0.03 x $1,500 
PMT = $45.00 
Therefore, the annual payment is $45.00.

Question 15

Consider a fixed-payment security that pays $100 at the end of every year for three years.If the annual rate of discount is 10 percent, the present value of the security is

Accepted Answer

The present value of a fixed-payment security can be calculated as:

PV = Payment/(1 + r)^n

Where PV is the present value, Payment is the amount paid each period, r is the annual rate of discount, and n is the number of periods.

In this case, Payment = $100, r = 0.10 (10% as a decimal), and n = 3. Plugging these values into the equation, we get:

PV = $100/(1 + 0.10)^1 + $100/(1 + 0.10)^2 + $100/(1 + 0.10)^3
PV = $90.91 + $82.64 + $75.13
PV = $248.69

Therefore, the present value of the security is $248.69, which is closest to answer choice B.

Question 16

Consider a perpetuity that pays $150 every year.If the annual rate of discount is 4 percent, the present value of the perpetuity is

Accepted Answer

The formula to calculate the present value of a perpetuity is: present value = annual payment / interest rate. Substituting the values given in the problem, we get: present value = $150 / 0.04 = $3,750. Therefore, the correct answer is (D).

Question 17

The amount repaid by a coupon bond at maturity is called its_____ value.

Accepted Answer

The term "face" refers to the principal amount of a bond, which is also known as its par value. Therefore, the value repaid by a coupon bond at maturity is called its face value, not its present or future value. The coupon refers to the interest payments made by the bond during its term.

Question 18

Consider a three-year coupon bond that has a present value of $2,000.If the annual rate of discount is 7 percent, and the payment made at the end of each year is $140, the principal amount to be repaid at the end of three years is

Accepted Answer

The answer of Consider a three-year coupon bond that has...

Question 19

Consider a perpetuity making one payment each year that has a present value of $1,000.If the annual rate of discount is 7 percent, the annual payment is

Accepted Answer

The annual payment of a perpetuity is calculated as the present value multiplied by the discount rate. Therefore, $1,000 * 0.07 = $70.00.

Question 20

A bond that makes a regular interest payment until maturity, at which time the face value is repaid is referred to as a

Accepted Answer

A coupon bond is a type of bond that pays regular interest payments until the maturity date, at which time the face value is repaid. This is the most common type of bond issued by corporations and governments. A fixed-payment security refers to a security where the payment is fixed and does not vary, but it does not necessarily refer specifically to bonds. A discount bond is a bond that is sold for less than its face value, and the investor doesn't receive interest payments but instead earns a profit from the difference between the purchase price and the face value at maturity. A perpetuity is a type of security that pays a fixed sum of money indefinitely, without a maturity date.

Quiz 4: Present Value

Consider a coupon bond that pays $105 every year and repays its principal amount of $1,500 at the end of 3 years.If the annual rate of discount is 7 percent, the present value of the bond is approximately

Which of the following statements is true of a perpetuity?

Consider a three-year fixed-payment security that has a present value of $1,000.If the annual rate of discount is 7 percent, the payment made at the end of each year is

The difference between the present value of a perpetuity that pays $250 every year and a perpetuity that pays $500 every year when the annual rate of discount is 5% is

Consider a five-year fixed-payment security that has a present value of $1,500.If the annual rate of discount is 2 percent, the payment made at the end of each year is

A debt security that pays interest forever and never repays the principal is a

After amortizing the principal, a debt security that makes the same dollar payment every year is referred to as a

Which of the following statements is true?

The process in which the principal amount of a security is repaid gradually over time is referred to as

Consider a perpetuity that pays $100 every year.If the annual rate of discount is 7 percent, the present value of the perpetuity is

The present value of a perpetuity that pays $F every year when the annual rate of discount is i is

Consider a coupon bond that pays $100 every year and repays its principal amount of $1,000 at the end of 10 years. If the annual rate of discount is 10 percent, the present value of the bond is approximately

Consider a fixedpayment security that pays $100 at the end of every year for five years.If the annual rate of discount is 7 percent, the present value of the security is

Consider a perpetuity making one payment each year that has a present value of $1,500.If the annual rate of discount is 3 percent, the annual payment is

Consider a fixed-payment security that pays $100 at the end of every year for three years.If the annual rate of discount is 10 percent, the present value of the security is

Consider a perpetuity that pays $150 every year.If the annual rate of discount is 4 percent, the present value of the perpetuity is

The amount repaid by a coupon bond at maturity is called its_____ value.

Consider a three-year coupon bond that has a present value of $2,000.If the annual rate of discount is 7 percent, and the payment made at the end of each year is $140, the principal amount to be repaid at the end of three years is

Consider a perpetuity making one payment each year that has a present value of $1,000.If the annual rate of discount is 7 percent, the annual payment is

A bond that makes a regular interest payment until maturity, at which time the face value is repaid is referred to as a

Quiz 4: Present Value

Consider a coupon bond that pays $105 every year and repays its principal amount of $1,500 at the end of 3 years.If the annual rate of discount is 7 percent, the present value of the bond is approximately

​Which of the following statements is true of a perpetuity?

Consider a three-year fixed-payment security that has a present value of $1,000.If the annual rate of discount is 7 percent, the payment made at the end of each year is

The difference between the present value of a perpetuity that pays $250 every year and a perpetuity that pays $500 every year when the annual rate of discount is 5% is

Consider a five-year fixed-payment security that has a present value of $1,500.If the annual rate of discount is 2 percent, the payment made at the end of each year is

A debt security that pays interest forever and never repays the principal is a

After amortizing the principal, a debt security that makes the same dollar payment every year is referred to as a

Which of the following statements is true?

The process in which the principal amount of a security is repaid gradually over time is referred to as

Consider a perpetuity that pays $100 every year.If the annual rate of discount is 7 percent, the present value of the perpetuity is

The present value of a perpetuity that pays $F every year when the annual rate of discount is i is

Consider a coupon bond that pays $100 every year and repays its principal amount of $1,000 at the end of 10 years. If the annual rate of discount is 10 percent, the present value of the bond is approximately

​Consider a fixed­payment security that pays $100 at the end of every year for five years.If the annual rate of discount is 7 percent, the present value of the security is

Consider a perpetuity making one payment each year that has a present value of $1,500.If the annual rate of discount is 3 percent, the annual payment is

Consider a fixed-payment security that pays $100 at the end of every year for three years.If the annual rate of discount is 10 percent, the present value of the security is

Consider a perpetuity that pays $150 every year.If the annual rate of discount is 4 percent, the present value of the perpetuity is

The amount repaid by a coupon bond at maturity is called its_____ value.

Consider a three-year coupon bond that has a present value of $2,000.If the annual rate of discount is 7 percent, and the payment made at the end of each year is $140, the principal amount to be repaid at the end of three years is

Consider a perpetuity making one payment each year that has a present value of $1,000.If the annual rate of discount is 7 percent, the annual payment is

A bond that makes a regular interest payment until maturity, at which time the face value is repaid is referred to as a

Which of the following statements is true of a perpetuity?

Consider a fixedpayment security that pays $100 at the end of every year for five years.If the annual rate of discount is 7 percent, the present value of the security is