This document contains 35 multiple choice questions regarding finance concepts like present and future value, annuities, bonds, stocks, dividends, and capital budgeting. The questions are from a homework assignment on topics like time value of money, bond valuation, stock valuation, dividend valuation models, and net present value. Sample calculations are provided for various cash flows with different interest rates and time periods.

1. BUSI 530 Week 3 Homework 3 Solutions NEW
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BUSI 530 Week 3 Homework 3 (Solutions) NEW
Question 1
Compute the present value of a $300 cash flow for
the following combinations of discount rates and
times: (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
Question 2
Compute the future value of a $190 cash flow for
the same combinations of rates and times: (Do not
round intermediate calculations. Round your
answers to 2 decimal places.)
Question 3

2. In 1880 five aboriginal trackers were each
promised the equivalent of 100 Australian dollars
for helping to capture the notorious outlaw Ned
Kelley. In 1995 the granddaughters of two of the
trackers claimed that this reward had not been
paid. The prime minister stated that if this was
true, the government would be happy to pay the
$100. However, the granddaughters also claimed
that they were entitled to compound interest.
Question 4
a¬1. Calculate the present value of an annual
payment of $1,050 you would received for 12
years if the interest rate is 3%. (Do not round
intermediate calculations. Round your answer to 2
decimal places.)
a¬2. Calculate the present value of an annual
payment of $850 you would received for 17 years
if the interest rate is 3%. (Do not round
intermediate calculations. Round your answer to 2
decimal places.)
a¬3. Which option would you prefer?
b¬1. Calculate the present value of an annual
payment of $1,050 you would received for 12
years if the interest rate is 12%. (Do not round

3. intermediate calculations. Round your answer to 2
decimal places.)
b¬2. Calculate the present value of an annual
payment of $850 you would received for 17 years
if the interest rate is 12%. (Do not round
intermediate calculations. Round your answer to 2
decimal places.)
b¬3. Which option would you prefer?
Question 5
Find the annual interest rate. (Do not round
intermediate calculations. Round your answers to
2
Question 6
If you earn 5.00% per year on your bank account,
how long will it take an account with $100 to
double to $200? Use the log formula. (Do not
round intermediate calculations. Round your
answer to 2 decimal places.)
Question 7
Investments in the stock market have increased at
an average compound rate of about 5% since
1903. It is now 2012.

4. Question 8
In mid¬2010 a pound of apples cost $1.42, while
oranges cost $1.26. Ten years earlier the price of
apples was only $1.00 a pound and that of oranges
was $.78 a pound.
Question 9
a. If you take out an $8,200 car loan that calls for
60 monthly payments starting after 1 month at an
APR of 12%, what is your monthly payment? (Do
not round intermediate calculations. Round your
answer to 2 decimal places.)
b. What is the effective annual interest rate on the
loan? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
Question 10
Professor’s Annuity Corp. offers a lifetime annuity
to retiring professors. For a payment of $83,000 at
age 65, the firm will pay the retiring professor
$675 a month until death
Question 11

5. You can buy property today for $2.5 million and
sell it in 4 years for $3.5 million. (You earn no
rental income on the property.)
Question 12
A factory costs $450,000. You forecast that it will
produce cash inflows of $105,000 in year 1,
$165,000 in year 2, and $270,000 in year 3. The
discount rate is 11%
Question 13
If the interest rate this year is 8.4% and the
interest rate next year will be 10.4%, what is the
future value of $1 after 2 years? What is the
present value of a payment of $1 to be received in
2 years? (Do not round intermediate calculations.
Round your answers to 4 decimal places.)
Question 14
A 10¬year Treasury bond is issued with face value
of $1,000, paying interest of $72 per year. If
market yields increase shortly after the T¬bond is
issued, what is the bond’s coupon rate? (Round
your answer to 1 decimal place.)
Question 15

6. A 10¬year Circular File bond pays interest of $55
annually and sells for $984. What are its coupon
rate and yield to maturity? (Do not round
intermediate calculations. Round "Coupon rate" to
1 decimal place and "Yield to maturity" to 2
decimal places.)
Question 16
A bond has 16 years until maturity, a coupon rate
of 6.8%, and sells for $1,106.
Question 17
General Matter’s outstanding bond issue has a
coupon rate of 10.6%, and it sells at a yield to
maturity of 8.70%. The firm wishes to issue
additional bonds to the public at face value. What
coupon rate must the new bonds offer in order to
sell at face value? (Round your answer to 2
decimal places.)
Question 18
Refer the table below:
Question 19

7. One bond has a coupon rate of 5.8%, another a
coupon rate of 8.4%. Both bonds have 9¬year
maturities and sell at a yield to maturity of 7%
Question 20
Sure Tea Co. has issued 4.6% annual coupon bonds
that are now selling at a yield to maturity of 6.5%
and current yield of 5.8492%. What is the
remaining maturity of these bonds? (Do not round
intermediate calculations. Round your answer to 2
decimal places.)
Question 21
Consider three bonds with 6.4% coupon rates, all
selling at face value. The short¬term bond has a
maturity of 4 years, the intermediate¬term bond
has maturity 8 years, and the long¬term bond has
maturity 30 years.
Question 22
A 2¬year maturity bond with face value of $1,000
makes annual coupon payments of $96 and is
selling at face value. What will be the rate of return
on the bond if its yield to maturity at the end of the
year is (Do not round intermediate calculations.
Round your answers to 2 decimal places.)

8. Question 23
A bond’s credit rating provides a guide to its risk.
Long¬term bonds rated Aa currently offer yields to
maturity of 4.5%. A¬rated bonds sell at yields of
4.8%. Assume a 10¬year bond with a coupon rate
of 4% is downgraded by Moody’s from Aa to A
rating
Question 24
Favored stock will pay a dividend this year of
$2.64 per share. Its dividend yield is 8%. At what
price is the stock selling? (Do not round
intermediate calculations.)
Question 25
Preferred Products has issued preferred stock
with an $6.27 annual dividend that will be paid in
perpetuity
Question 26
Waterworks has a dividend yield of 10.50%. If its
dividend is expected to grow at a constant rate of
7.50%, what must be the expected rate of return
on the company’s stock? (Do not round
intermediate calculations. Round your answer to 2
decimal places.)

9. Question 27
Steady As She Goes, Inc., will pay a year¬end
dividend of $3.10 per share. Investors expect the
dividend to grow at a rate of 5% indefinitely
Question 28
Integrated Potato Chips paid a $2.80 per share
dividend yesterday. You expect the dividend to
grow steadily at a rate of 4% per year.
Question 29
Arts and Crafts, Inc., will pay a dividend of $3 per
share in 1 year. It sells at $50 a share and firms in
the same industry provide an expected rate of
return of 12%. What must be the expected growth
rate of the company’s dividends? (Do not round
intermediate calculations.)
Question 30
Horse and Buggy Inc. is in a declining industry.
Sales, earnings, and dividends are all shrinking at
a rate of 10% per year.
Question 31

10. You expect a share of stock to pay dividends of
$1.80, $1.95, and $2.60 in each of the next 3 years.
You believe the stock will sell for $30 at the end of
the third year.
Question 32
No¬Growth Industries pays out all of its earnings
as dividends. It will pay its next $3 per share
dividend in a year. The discount rate is 12%
Question 33
Assume that market and book values are equal for
current assets, current liabilities, and debt and
other long¬ term liabilities
Question 34
Grandiose Growth has a dividend growth rate of
20%. The discount rate is 10%. The end¬of¬year
dividend will be $2 per share
Question 35
Computer Corp. reinvests 60% of its earnings in
the firm. The stock sells for $55, and the next
dividend will be $3.30 per share. The discount rate
is 10%. What is the rate of return on the
company’s reinvested funds? (Do not round

11. intermediate calculations. Round your answer to 2
decimal places.)