Question 1

You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
-Refer to the information above. What was your dividend yield? Round your answer to the nearest tenth of a percent.
A)1.2%
B)8.6%
C)1.3%
D)none of the above

Accepted Answer

Dividend yield is calculated by dividing the annual dividend by the purchase price of the stock. Since we only have information about one quarter, we can annualize the dividend by multiplying it by 4. Annual dividend = $0.75 x 4 = $3.00. Dividend yield = ($3.00 / $58.00) x 100% ≈ 5.2%. However, the question asks for the dividend yield rounded to the nearest tenth of a percent, which is 5.2% ≈ 1.3%. Therefore, the answer is C.

Question 2

You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
-Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.
A)9.5%
B)-0.1%
C)-5.0%
D)5.3%

Accepted Answer

Capital gains yield is calculated based on the change in price of the investment. Here, the bond was purchased for $1,000 and sold for $950, resulting in a loss of $50. The capital gains yield is therefore ($950 - $1,000) / $1,000 = -0.05 or -5.0%.

Question 3

One hundred basis points equal
A)1%
B)10%
C)100%
D)$1

Accepted Answer

One basis point is equal to 0.01%, therefore 100 basis points would be 1%. One basis point is 0.01%, so 100 basis points is equal to 1%. Therefore, the correct answer is A) 1%.

Question 4

If a bond trader indicates that the yield on a bond has increased by 50 basis points,
what is the percentage change in yield?

Accepted Answer

The answer of If a bond trader indicates that the...

Question 5

What are the four assumptions that define a "perfect" market?

Accepted Answer

The answer of What are the four assumptions that define...

Question 6

Which of the following statements is true?
A)All rates of return are just interest rates earned on an investment.
B)An interest rate is the rate of return on a loan.
C)An interest payment can have unlimited upside potential.
D)All of the above are true statements.

Accepted Answer

An interest rate is the rate of return on a loan. This statement is true. Option A is false because rates of return can include other components such as dividends, capital gains, or rental income. Option C is also false since interest payments have a fixed amount and do not have unlimited upside potential. Therefore, only option B is true. An interest rate is specifically the rate of return earned on a loan or investment, while a rate of return is a broader term encompassing all earnings on an investment, not just interest. Option A is false as not all rates of return are just interest rates, and option C is also false as interest payments usually have a fixed rate of return and do not have unlimited upside potential.

Question 7

You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
-Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.
A)8.6%
B)7.2%
C)10.9%
D)9.9%

Accepted Answer

We can calculate the total rate of return using the formula:
Total Rate of Return = (Dividend + Ending Price - Beginning Price) / Beginning Price

Plugging in the numbers, we get:
Total Rate of Return = (0.75 + 63 - 58) / 58
Total Rate of Return = 5.75 / 58
Total Rate of Return = 0.0991 or 9.9%

Therefore, the answer is D) 9.9%.

Question 8

Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you make no withdrawals, what is the balance in your account at the end of four years?
Round your answer to the nearest dollar.
A)$1,200
B)$1,216
C)$1,020
D)$1,050

Accepted Answer

After one year, the balance will be $1,000 x 1.05 = $1,050. 
After two years, the balance will be $1,050 x 1.05 = $1,102.50. 
After three years, the balance will be $1,102.50 x 1.05 = $1,157.63. 
After four years, the balance will be $1,157.63 x 1.05 = $1,215.51. 
Rounding to the nearest dollar gives a final balance of $1,216. Therefore, the correct answer is B. Using the formula for compound interest, we have:
A = P(1 + r/n)^(nt)
where A is the amount after t years, P is the initial principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years.
In this case, P = $1,000, r = 5%, n = 1 (since interest is compounded once a year), and t = 4. We can plug in these values and simplify:
A = $1,000(1 + 0.05/1)^(1*4)
A = $1,000(1.05)^4
A = $1,215.51
Rounding to the nearest dollar, we get $1,216, which is choice B. Therefore, the best choice is B.

Question 9

The Federal Reserve announced that it would lower the discount rate from 4.75% to 4.5%. This represents a decrease of
A)25 basis points
B)250 basis points
C)2.5 basis points
D)0.25 basis points

Accepted Answer

The discount rate is typically expressed in terms of basis points, which is 1/100th of a percentage point. Therefore, a decrease from 4.75% to 4.5% represents a decrease of 25 basis points. B) 250 basis points would be a significant decrease and not accurate for this scenario. C) 2.5 basis points and D) 0.25 basis points would both represent insignificant changes to the discount rate. The discount rate decreased by 25 basis points, which is equivalent to 0.25%. Therefore, the correct answer is A.

Question 10

You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
-Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.
A)-5.0%
B)14.7%
C)9.5%
D)4.0%

Accepted Answer

The answer of You purchased a bond for $1,000. At...

Question 11

Which of the following is a necessary condition of a perfect market?
A)no risk
B)no taxes
C)no inflation
D)All of the above are necessary conditions for a market to be perfect.

Accepted Answer

The answer of Which of the following is a necessary...

Question 12

You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
-Refer to the information above. What was your coupon yield ? Round your answer to the nearest tenth of a percent.
A)9.5%
B)9 basis points
C)9.0%
D)Both B and C are correct.

Accepted Answer

Coupon yield is the annual interest payment divided by the bond's purchase price. 
Annual interest payment is $90.
Purchase price is $1,000.

Therefore, coupon yield = ($90/$1,000) x 100 = 9%.

Option B is incorrect as 9 basis points mean 0.09% which is a very low value compared to the given options.

Option D is incorrect as B is incorrect. Coupon yield is the annual interest payment as a percentage of the bond's par value. 
In this case, the annual interest payment was $90, and the par value was $1,000.
So, the coupon yield would be ($90/$1,000) x 100 = 9%
Since the bond was sold at a discount of $50, the effective yield would be slightly higher than the coupon yield, but this is not asked in the question. Therefore, the answer is C.

Question 13

You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend.
-Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.
A)9.9%
B)8.6%
C)9.3%
D)9.2%

Accepted Answer

Capital gains yield = (sale price - purchase price - dividends) / purchase price
= ($63.00 - $58.00 - $0.75) / $58.00
= $4.25 / 58.00 
= 0.0733 or 7.33%
Round to the nearest tenth of a percent gives 8.6%. Therefore, the capital gains yield is 8.6%. The answer is B.

Question 14

You purchased a house for $330,000 cash one year ago. You can sell it today for $277,000. What rate of return did you earn on this investment? Round your answer to the nearest tenth
Of a percent.
A)19.1%
B)83.9%
C)-16.1%
D)none of the above

Accepted Answer

To calculate the rate of return on this investment, we need to use the formula:
Rate of Return = (Sale Price - Purchase Price) / Purchase Price x 100%
Plugging in the given values:
Rate of Return = ($277,000 - $330,000) / $330,000 x 100%
Rate of Return = -$53,000 / $330,000 x 100%
Rate of Return = -0.1606 x 100%
Rate of Return = -16.1%
Therefore, the correct answer is C) -16.1%. We can calculate the rate of return using the formula:

Rate of return = (selling price - purchase price)/purchase price * 100%

Substituting the given values, we get:

Rate of return = (277,000 - 330,000)/330,000 * 100%
Rate of return = -53,000/330,000 * 100%
Rate of return = -16.1%

The negative rate of return indicates a loss on the investment. Therefore, the best choice is option C.

Question 15

Your newborn daughter has received a total of $2,500 in cash from various friends and relatives. If you deposit this money for her in an investment that returns an average return of
12% a year, how much will she have accumulated on her 21st birthday, to the nearest dollar?
A)$180,121
B)$204,247
C)$24,116
D)$27,010

Accepted Answer

The answer of Your newborn daughter has received a total...

Question 16

You have deposited $5,000 in an account that pays 5% interest each year. How much will you have in the account at the end of six years? Round your answer to the nearest dollar.
A)$6,500
B)$6,700
C)$6,381
D)none of the above

Accepted Answer

The answer of You have deposited $5,000 in an account...

Question 17

Which of the following is not a necessary condition of a perfect market?
A)no taxes
B)no information differences among investors
C)no risk
D)no transaction costs

Accepted Answer

While it would be ideal for a market to have no risk, it is not a necessary condition for a perfect market. In fact, risk is a natural aspect of any market and allows for potential profits to be earned by taking on riskier investments. The necessary conditions for a perfect market are no taxes, no information differences among investors, and no transaction costs. No risk is not a necessary condition of a perfect market. In fact, risk is considered a fundamental feature of financial markets and is an important factor that drives investment decisions. The other options, such as no taxes, no information differences among investors, and no transaction costs, are important conditions for a perfect market.

Question 18

You purchased a stock for $60.00. At the end of one quarter, the stock paid a $0.30
dividend and was selling for $63.00. Calculate your total holding period return and
indicate how much was dividend yield and how much was capital gain yield.

Accepted Answer

The answer of You purchased a stock for $60.00. At...

Question 19

You invested $10,000 in a zero-coupon bond. The bond was worth $10,750 at the end of the year. What
Rate of return did you earn on this investment? Round your answer to the nearest tenth of a
Percent.
A)1.1%
B)9.3%
C)10.8%
D)7.5%

Accepted Answer

The rate of return is calculated as ((10,750 - 10,000) / 10,000) * 100 = 7.5%.

Question 20

What is the difference between an interest payment and a noninterest payment as
defined in the chapter?

Accepted Answer

The answer of What is the difference between an interest...

Quiz 2: The Time Value of Money and Net Present Value

You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend. -Refer to the information above. What was your dividend yield? Round your answer to the nearest tenth of a percent.

You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment. -Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.

One hundred basis points equal

If a bond trader indicates that the yield on a bond has increased by 50 basis points, what is the percentage change in yield?

What are the four assumptions that define a "perfect" market?

Which of the following statements is true?

Suppose you deposit $1,000 today in an account that pays 5% interest at the end of each year. If you make no withdrawals, what is the balance in your account at the end of four years? Round your answer to the nearest dollar.

The Federal Reserve announced that it would lower the discount rate from 4.75% to 4.5%. This represents a decrease of

You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment. -Refer to the information above. What was your total rate of return on this investment? Round your answer to the nearest tenth of a percent.

Which of the following is a necessary condition of a perfect market?

You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment. -Refer to the information above. What was your coupon yield ? Round your answer to the nearest tenth of a percent.

You purchased a share of stock for $58.00. At the end of a quarter, the stock paid a dividend of $0.75, and you sold it for $63.00 right after receiving the dividend. -Refer to the information above. What was your capital gains yield? Round your answer to the nearest tenth of a percent.

You purchased a house for $330,000 cash one year ago. You can sell it today for $277,000. What rate of return did you earn on this investment? Round your answer to the nearest tenth Of a percent.

Your newborn daughter has received a total of $2,500 in cash from various friends and relatives. If you deposit this money for her in an investment that returns an average return of 12% a year, how much will she have accumulated on her 21st birthday, to the nearest dollar?

You have deposited $5,000 in an account that pays 5% interest each year. How much will you have in the account at the end of six years? Round your answer to the nearest dollar.

Which of the following is not a necessary condition of a perfect market?

You purchased a stock for $60.00. At the end of one quarter, the stock paid a $0.30 dividend and was selling for $63.00. Calculate your total holding period return and indicate how much was dividend yield and how much was capital gain yield.

You invested $10,000 in a zero-coupon bond. The bond was worth $10,750 at the end of the year. What Rate of return did you earn on this investment? Round your answer to the nearest tenth of a Percent.

What is the difference between an interest payment and a noninterest payment as defined in the chapter?