Quiz Questions


1	A $10,000, 7% bond (interest payable semiannually) will mature on June 1, 2008 at which time it will be redeemed at face value. This bond was purchased on December 1, 1997 to yield 9% compounded semiannually until maturity. What was the purchase price?
		A)	$9177.58
		B)	$8659.53
		C)	$8555.55
		D)	$10,000.00
		E)	$11,469.80


2	Referring to the first question, what was the bond's premium or discount on the purchase date?
		A)	$1340.47 (premium)
		B)	$1469.80 (premium)
		C)	$0.00
		D)	$1340.47 (discount)
		E)	$1469.80 (discount)


3	Referring to the first question, what was the investor's capital gain if she sold the bond on December 1, 1998 when the bond market's required rate of return was 6% compounded semiannually?
		A)	$743.87
		B)	$716.19
		C)	$2084.34
		D)	$2056.66
		E)	$2111.22


4	A $25,000 face value, 10% coupon bond (interest payable semiannually) will mature on April 15, 2011. This bond was purchased on November 10, 1998 to yield 8% compounded semiannually to maturity. What was the purchase price?
		A)	$29,067.93
		B)	$21,483.87
		C)	$28,889.36
		D)	$29,070.24
		E)	$28,905.52


5	Referring to question 4, what was the accrued interest on November 10, 1998?
		A)	$71.43
		B)	$178.57
		C)	$178.08
		D)	$0.00
		E)	$3070.24


6	Referring to question 4, what was the quoted price (as a percent of face value) on November 10, 1998?
		A)	71.43%
		B)	85.94%
		C)	115.57%
		D)	100.00%
		E)	117.88%


7	Referring to question 4, what was the capital gain if the investor sold the bond on April 15, 1999 to yield 6.5% compounded semiannually?
		A)	$0.00
		B)	$3500.55
		C)	$3321.49
		D)	$3323.85
		E)	$3321.98


8	Equal deposits will be made to a sinking fund at the end of each year for 10 years. The fund will earn 9% compounded annually. The maturity value of the fund at the end of 10 years must be $100,000.00. What is the size of the annual deposit to the sinking fund?
		A)	$15,582.01
		B)	$14,295.42
		C)	$8008.73
		D)	$6038.54
		E)	$6582.01


9	Referring to the previous question, by how much will the sinking fund increase during the 6th payment interval?
		A)	$11,038.69
		B)	$3545.23
		C)	$8008.73
		D)	$10,127.24
		E)	$5000.15


10	A company borrowed $250,000.00. The debt agreement requires that the company pay only the accrued interest on the loan at the end of each year. At the same time, the company is required to make ten equal year-end deposits to a sinking fund in order to retire the principal amount of the debt after ten years. Interest on the loan is 15% compounded annually, and interest at 10% compounded annually is earned by the sinking fund. What is the annual interest expense?
		A)	$78,186.35
		B)	$25,000.00
		C)	$37,500.00
		D)	$40,686.35
		E)	$53,186.35


11	Referring to the previous question, what will be the balance in the sinking fund just after the fourth deposit?
		A)	$70,706.03
		B)	$72,800.34
		C)	$12,897.03
		D)	$80,080.38
		E)	$61,483.50


12	A municipality borrowed $500,000 for water main improvements. The debt agreement requires that the municipality pay the interest on the loan at the end of each year. At the same time, the municipality must make equal annual deposits to a sinking fund to retire the principal amount of the loan after 20 years. The interest rate on the loan is 15% compounded annually. The sinking fund earns 12% compounded annually. What will be the balance in the sinking fund just after the eighth deposit?
		A)	$414,647.63
		B)	$102,765.55
		C)	$85,352.37
		D)	$65,996.97
		E)	$433,033.33


13	Referring to the previous question, what is the total annual cost of the debt?
		A)	$4880.74
		B)	$6939.39
		C)	$66,939.39
		D)	$81,939.39
		E)	$79,880.74

2003 McGraw-Hill Higher Education
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