Finance for Non-Finance Professionals, Week 1 Quiz 1

quiz1.txt

1. What are the 3 main factors that affect Interest Rates?

War, Recession, Timing

Opportunity Costs, Inflation, Risk

Economic Conditions, Historical Price Trends, Stock Market
>> Opportunity Costs, Inflation, Risk

2. Choose between these prizes if the interest rate is 10%:

$1,000 now

$1,500 at the end of 4 years
>>$1,500 at end of 4 years

3. If you need $20,000 for a car purchase by the time you graduate from college in 4 years and annual nominal interest rates are 2%, how much would you need to put into savings today?

$9.645.06

$10,204.08

$18,476.91

$18,491.12
>>$18,476.91

4. What happens to the present value of $1,000 when the due date that it is to be paid changes from 5 years to 4 years?

PV goes up

PV goes down
>>PV goes up

5. Suppose you put $1,000 into a bank account that pays an annual nominal interest rate of 5%. What will be the account balance at the end of 10 years? Assume there is no deposit or withdrawal in the interim.

$1,000

$1,500

$1,628.90

$1,436.70
>>$1,628.90

6. In the above bank account, what would the account balance be at the end of 10 years if the interest rate is compounded semi-annually at 1/2 the annual nominal rate?

$1,638.62

$1,628.90

$1,500.00
>>$1,638.62

7. What is the present value of a simple bond with a face value of $6,000 and makes annual payments of $300 for 5 years at a discount rate of 3%?

$5,434.44

$6,549.56

$7,500.00
>>$6,549.56

8. What is the value of a share of stock in Company A that is earning $1.57 per share using a P/E ratio valuation to comparable Company B trading at $15 and a P/E ratio of 14 with earnings of $2.42 per share?

$21.98

$23.55

$33.88
>>$21.98

9. Suppose a bond will pay $1,000 in 2 years. At the end of each of the next 2 years, the bond will also pay a coupon of $50. Assume a discount rate of 10%. What is the price of this bond?

$900

$913.22

$1000

$1012.51
>>$913.22

10. For the same bond, suppose the discount rate is 3%. What is the price?

$976.21

$1,000

$1,012.51

$1,038.27
>>$1,038.27