Other things being equal, why is the present value of an annuity due larger than the present value of an ordinary annuity?
> How must you allocate your money among a number of investments so that your portfolio’s overall rate of return will be the same as the simple average of the rates of return on individual investments?
> In what circumstance is the weighted average equal to the simple average?
> Calculate the missing values for the promissory notes described. Issue date = ? Term = 4 months Legal due date = Feb 28
> 1. If you want four-figure accuracy in your final result, what minimum number of figures must be retained in the values used in the calculations? A) 4 B) 5 C) 6 2. For a final result of approximately $7000 to be accurate to the cent, what minimum number
> Calculate the missing values for the promissory notes described. Issue date = Nov 14 Term = ? Legal due date = Jan 31
> If you are firmly convinced that prevailing interest rates will decline, how should you change the relative weighting of short-term and long-term bonds in your bond portfolio?
> Calculate the missing values for the promissory notes described. Issue date = July 6 Term = ? Legal due date = Oct 17
> On a recent interest payment date, a bond’s price exceeded its face value. If the prevailing market rate of return does not change thereafter, will the bond’s premium be different on later interest payment dates? Explain.
> Calculate the missing values for the promissory notes described. Issue date = June 30 Term = 90 days Legal due date = ?
> Solve the equations. 2 x 1.03 7 + x + x ( 1.03 ) 10 = $1000 + $2000 1.03 4
> Assuming that the bond issuer does not default on any payments, is it possible to lose money on a bond investment? Discuss briefly.
> Calculate the missing values for the promissory notes described. Issue date = May 19 Term = 120 days Legal due date = ?
> Under what circumstance can you realize a capital gain on a bond investment?
> An investor is prepared to buy short-term promissory notes at a price that will provide him with a return on investment of 12%. What amount would he pay on August 9 for a 120-day note dated July 18 for $4100 with interest at 10.25%?
> Name four variables that affect a bond’s price. Which ones, if any, have an inverse effect on the bond’s price? That is, for which variables does a lower value of the variable result in a higher bond price?
> A six-month note dated June 30 for $2900 bears interest at 13.5%. Determine the proceeds of the note if it is discounted at 9.75% on September 1.
> The calculated monthly payment on a loan amortized over 10 years is rounded down by 0.3 cents to get to the nearest cent. 1. Will the adjusted final payment be more than or less than the regular payment? 2. Will the difference between the regular and the
> The payee on a three-month $2700 note earning interest at 8% wishes to sell the note to raise some cash. What price should she be prepared to accept for the note (dated May 19) on June 5 in order to yield the purchaser an 11% rate of return?
> The calculated monthly payment on a loan amortized over five years is rounded up by 0.2 cents to get to the nearest cent. 1. Will the adjusted final payment be more than or less than the regular payment? 2. Will the difference between the regular and the
> A 100-day $750 note with interest at 12.5% was written on July 15. The maker approaches the payee on August 10 to propose an early settlement. What amount should the payee be willing to accept on August 10 if short-term investments can earn 8.25%?
> Solve the equations. 3 x 1.025 6 + x ( 1.025 ) 8 = $2641.35
> Jasper Ski Corp. is studying the feasibility of installing a new chair lift to expand the capacity of its downhill-skiing operation. Site preparation would require the expenditure of $1,900,000 at the beginning of the first year. Construction would take
> Classifying individual costs as either purely fixed or purely variable can be problematic, especially when a firm produces more than one product. Rather than determining FC and VC by analyzing each cost, you can use an income statement approach for estim
> If the loan payments and interest rate remain unchanged, will it take longer to reduce a loan’s balance from $20,000 to $10,000 than to reduce the balance from $10,000 to $0? Explain briefly.
> A six-month non-interest-bearing note issued on September 30, 2019 for $3300 was discounted at 11.25% on December 1. What were the proceeds of the note?
> Will a loan’s balance midway through its amortization period be (pick one): (i) more than, (ii) less than, or (iii) equal to half of the original principal? Explain.
> A 90-day non-interest-bearing note for $3300 is dated August 1. What would be a fair selling price of the note on September 1 if money can earn 7.75%?
> Will the market value of a perpetual preferred share (paying a fixed periodic dividend) rise or fall if the rate of return (dividend yield) required by investors declines? Give a brief explanation.
> Calculate the maturity value of a $1000 face value, five-month note dated December 31, 2019, and bearing interest at 9.5%.
> If market interest rates rise, will it require a larger endowment to sustain a perpetuity with a particular payment size? Give a brief explanation.
> Calculate the maturity value of a 120-day, $1000 face value note dated November 30, 2020, and earning interest at 10.75%.
> A perpetuity and an annuity both have the same values for PMT and i. Which has the larger present value? Give a brief explanation.
> Determine the legal due date for: 1. A four-month note dated April 30, 2019. 2. A 120-day note issued April 30, 2019.
> Solve the equations. 29 – 4y = 2y – 7
> For the same n, PMT, and i, is the present value of a deferred annuity larger or smaller than the present value of an ordinary annuity? Explain.
> Determine the legal due date for: 1. A five-month note dated September 29, 2019. 2. A 150-day note issued September 29, 2019.
> 1. How long is the period of deferral if the first quarterly payment of a deferred ordinary annuity will be paid 3 1 2 years from today? 2. How long is the deferral period if the first quarterly payment of a deferred annuity due will be paid 3 1 2 years
> Calculate the missing values for the promissory notes described. Face value ($) = 4000 Issue date = Nov 30 Interest rate (%) = 8 Term = 75 days Date of Sale = Jan 1 Discount Rate (%) = ? Proceeds = 4015.25
> The term of the lease on a vehicle is about to expire. Answer parts (a) and (b) strictly on financial considerations. 1. If the market value of the vehicle is less than the residual value, what should the lessee do? 2. If the market value of the vehicle
> Calculate the missing values for the promissory notes described. Face value ($) = 9000 Issue date = July 28 Interest rate (%) = 8 Term = 91 days Date of Sale = Sept 1 Discount Rate (%) = ? Proceeds = 9075.40
> An ordinary annuity and an annuity due have the same present value, n, and i. Which annuity has the smaller payment? Give the reason for your answer.
> Calculate the missing values for the promissory notes described. Face value ($) = 3500 Issue date = Oct 25 Interest rate (%) = 10 Term = 120 days Date of Sale = Dec 14 Discount Rate (%) = 8 Proceeds = ?
> An ordinary annuity and an annuity due have the same future value, n, and i. Which annuity has the larger payment? Give the reason for your answer.
> Calculate the missing values for the promissory notes described. Face value ($) = 2700 Issue date = Sept 4 Interest rate (%) = 10 Term = 182 days Date of Sale = Dec 14 Discount Rate (%) = 12 Proceeds = ?
> Solve the equations. x 1.1 2 + 2 x ( 1.1 ) 3 = $1000
> Other factors being equal, is the PV of an annuity due larger if the given nominal discount rate is compounded monthly instead of annually? Explain briefly.
> Calculate the missing values for the promissory notes described. Face value ($) = 6000 Issue date = May 17 Interest rate (%) = 0 Term = 3 months Date of Sale = June 17 Discount Rate (%) = 9 Proceeds =?
> If the periodic interest rate for a payment interval is 3%, by what percentage will PV(due) exceed PV?
> Calculate the missing values for the promissory notes described. Face value ($) = 1000 Issue date = March 30 Interest rate (%) = 0 Term = 50 days Date of Sale = April 8 Discount Rate (%) = 10 Proceeds = ?
> Calculate the missing values for the promissory notes described. Issue date = March 30 Face value ($) = 9400 Term = ? Interest rate (%) = 9.90 Maturity value ($) = 9560.62
> For the present value of an annuity due, where is the focal date located relative to the first payment?
> Calculate the missing values for the promissory notes described. Issue date = Dec 31 Face value ($) = 5200 Term = ? Interest rate (%) = 11.00 Maturity value ($) = 5275.22
> Other things being equal, why is the future value of an annuity due larger than the future value of an ordinary annuity?
> Calculate the missing values for the promissory notes described. Issue date = Nov 5 Face value ($) = 4350 Term = 75 days Interest rate (%) = ? Maturity value ($) = 4445.28
> Solve the equations. 12x − 4x(1.06)4 = $1800
> For the future value of an annuity due, where is the focal date located relative to the final payment?
> Calculate the missing values for the promissory notes described. Issue date = Jan 22 Face value ($) = 6200 Term = 120 days Interest rate (%) = ? Maturity value ($) = 6388.04
> Give three examples of an annuity due.
> Calculate the missing values for the promissory notes described. Issue date = Aug 31 Face value ($) = ? Term = 3 months Interest rate (%) = 7.50 Maturity value ($) = 7644.86
> If you contribute $250 per month to an RRSP instead of $500 per month, will the time required to reach a particular savings target be (pick one): (i) twice as long? (ii) less than twice as long? (iii) more than twice as long? Give the reasoning for your
> Calculate the missing values for the promissory notes described. Issue date = July 3 Face value ($) = ? Term = 90 days Interest rate (%) = 10.20 Maturity value ($) = 2667.57
> If you double the size of the monthly payment you make on a loan, will you pay it off in (pick one): (i) half the time? (ii) less than half the time? (iii) more than half the time? Give the reasoning for your choice.
> Calculate the missing values for the promissory notes described. Issue date = Feb 15 Face value ($) = 3300 Term = 60 days Interest rate (%) = 8.75 Maturity value ($) = ?
> You intend to accumulate $100,000 in 10 years instead of 20 years by making equal monthly investment contributions. Will the monthly contribution for a 10-year plan be: (i) Twice the monthly contribution for a 20-year plan? (ii) Less than twice the month
> Calculate the missing values for the promissory notes described. Issue date = April 30 Face value ($) = 1000 Term = 4 months Interest rate (%) = 9.50 Maturity value ($) = ?
> Solve the equations. ( 1.065 ) 2 x − x 1.065 = $ 35
> Suppose you choose to pay off a loan over 10 years instead of 5 years. The principal and interest rate are the same in both cases. Will the payment for the 10-year term be: (i) Half the payment for the 5-year term? (ii) More than half the payment? (iii)
> Calculate the missing values for the promissory notes described. Issue date = ? Term = 60 days Legal due date = March 1 (leap year)
> Think of a 20-year annuity paying $2000 per month. If prevailing market rates decline over the next year, will the price to purchase a 20-year annuity increase or decrease? Explain.
> Calculate the missing values for the promissory notes described. Issue date = ? Term = 180 days Legal due date = Sept 2
> Suppose the discount rate used to calculate the present value of an annuity is increased (leaving n and PMT unchanged). Will the annuity’s present value be (pick one): (i) larger or (ii) smaller than before? Give a reason for your choice.
> If an ordinary annuity with quarterly payments and a 5 1 2 -year term began June 1, 2020, what are the dates of the first and last payments?
> Calculate the missing values for the promissory notes described. Issue date = ? Term = 9 months Legal due date = Oct 3
> If you pay automobile insurance premiums by monthly pre-authorized chequing, do the payments form an ordinary annuity?
> What is meant by the “term” of an annuity?
> What distinguishes an ordinary simple annuity from an ordinary general annuity?
> Solve the equations. 2 1 − b 1.45 = 5.5 b − 9
> A semiannually compounded nominal rate and a monthly compounded nominal rate have the same effective rate. Which has the larger nominal rate? Explain.
> Is the effective rate of interest ever equal to the nominal interest rate? Explain.
> Is the effective rate of interest ever numerically smaller than the nominal interest rate? Explain.
> What is meant by the effective rate of interest?
> Which investment scenario requires more time: “$1 growing to $2” or “$3 growing to $5”? Both investments earn the same rate of return. Justify your choice.
> Under what circumstance does the value calculated for n equal the number of years in the term of the loan or investment?
> Which scenario had the higher periodic rate of return: “$1 grew to $2” or “$3 grew to $5”? Both investments were for the same length of time at the same compounding frequency. Justify your choice.
> Is FV negative if you lose money on an investment?
> If FV is less than PV, what can you predict about the value for i?
> Why is $100 received today worth more than $100 received at a future date?
> Solve the equations. 10 a 2.2 + ( 2.2 ) 2 = 6 + a ( 2.2 ) 3
> Suppose it took x years for an investment to grow from $100 to $200 at a fixed compound rate of return. How many more years will it take to earn an additional 1. $100? 2. $200? 3. $300? In each case, pick an answer from: (i) more than x years, (ii) f
> For a six-month investment, rank the following interest rates (number one being “most preferred”): 6% per annum simple interest, 6% compounded semiannually, 6% compounded quarterly. Explain your ranking.
> Explain the difference between “nominal rate of interest” and “periodic rate of interest.”
> Explain the difference between “compounding period” and “compounding frequency.”
> What does it mean to compound interest?
> If short-term interest rates do not change, what happens to a particular T-bill’s fair market value as time passes?
> If short-term interest rates have increased during the past week, will investors pay more this week (than last week) for T-bills of the same term and face value? Explain.
> Is the price of a 98-day $100,000 T-bill higher or lower than the price of a 168-day $100,000 T-bill? Why?
> If the interest rate money can earn is revised upward, is today’s economic value of a given stream of future payments higher or lower? Explain. Answer: Today’s economic value is lower. This economic value is the lump amount today that is equivalent to
> We frequently hear a news item that goes something like: “Joe Superstar signed a five-year deal worth $25 million. Under the contract he will be paid $3 million, $4 million, $5 million, $6 million, and $7 million in successive years.” In what respect is
> Solve the equations. 3 .5 x − 1 = 2.5
> What is meant by the “time value of money”?
