PRACTICE

Question 20

Assume that you are estimating the value of bond with the following characteristics:

par value = $1,000

coupon rate = 7.25% per year

payment schedule = semiannual

maturity = 5 1/2 years

Your required rate of return for this bond is 8.25% per year (compounded semiannually). Given all of this information, which of the following is true of the value of the bond?

	A.	The value will be greater than par.
	B.	The value will be equal to par.
	C.	The value will be less than par.
	D.	The value will be $1,000.
	E.	It is impossible to answer with the information given.

Question 21

Which of the following is true of the Agency Problem?

	A.	It may exist any time someone (the principle) hires someone else (the agent) to represent his/her interests.
	B.	It can result when managers do not act in the interest of shareholders.
	C.	The chance of an Agency Problem is increased the more closely the interests of managers and stockholders are aligned.
	D.	Only A and B are true.
	E.	None of the above is true.

Question 22

Par value $1,000

Coupon rate 6.5% per year

Payment schedule semiannual (6/15, 12/15)

Maturity date 6/15/2037

Market price 157.65 (% of par value)

The information above describes a corporate bond issued by Target Corp. Based on this information, which of the following statements is/are true?

	A.	The Target bond is selling at a premium.
	B.	The Target bond is selling at a discount.
	C.	The Target bond is selling at par.
	D.	The Target bond is selling for $1,000.
	E.	Both C and D are true.

Question 23

Par value $1,000

Coupon rate 6.5% per year

Payment schedule semiannual (6/15, 12/15)

Maturity date 6/15/2037

Market price 157.65 (% of par value)

Shown above is information pertaining to a corporate bond. Based on this information:

	A.	the bond's price is $157.65.
	B.	the bond's price is $1,576.50.
	C.	the bond's price is $15,765.00.
	D.	the bond's price is $1,000.00.
	E.	none of the above is true.

Question 24

Assume that you are analyzing a corporate bond with the following characteristics:

Par value $1000

Coupon rate 8% per year

Payment schedule semiannual

Maturity 5 years.

If the market price for this bond is $950.00, then:

	A.	the yield to maturity will be less than 8%.
	B.	the yield to maturity will be equal to 8%.
	C.	the yield to maturity will be greater than 8%.
	D.	the yield to maturity will be equal to $1000.
	E.	none of the above is true.

Question 25

Par value $1000

Coupon rate 8% per year

Payment schedule semiannual

Maturity 5 years.

Consider a corporate bond with the characteristics listed above. Assume that your required rate of return on this bond is 9.5% per year, compounded semiannually. With this required rate of return:

	A.	the value of the bond will be equal to $1000.
	B.	the value of the bond will be less than $1000.
	C.	the value of the bond will be greater than $1000.
	D.	the value of the bond will be equal to par.
	E.	both A and D are true.

Question 26

Answer each of the following....................

A. Assume that you have $7500 today to invest for 20 years. You can invest at 8% per year, compounded quarterly. How much will you have accumulated at the end of the 20 years?

B. Assume that you need to accumulate a total of $50,000 at the end of 32 years. You can invest at 4% per year, compounded semiannually. How much must you invest today in order to reach your $50,000 goal?

C. Assume that you have $7500 today and need a total of $12,000 at the end of 10 years. If you can invest today, you can earn interest compounded monthly. What annual interest must you earn? Be sure to state your final answer in annual terms.

D. Assume that you have $5000 today that you can invest at a rate of 8% per year, compounded semiannually. How many years will it take your money to triple? Be sure to state your answer in years.

E. Assume that you have the opportunity to invest in a regular (deferred) annuity of $500 paid semiannually. The annuity will run for 10 years. If your required rate of return is 6% per year, compounded semiannually, what is the present value of the annuity?

Question 27

NSU Unlimited, Inc.

End-of-Year Balance Sheets

2023 2022 2021

Cash 30 20 30

Accounts receivable 280 395 430

Inventory 400 510 640

Current assets 710 925 1100

Gross fixed assets 1000 1000 1650

Accumulated depreciation 260 220 280

Net fixed assets 740 780 1370

Total assets 1450 1705 2470

Accounts payable 198 300 375

Accruals 100 260 315

Notes payable 100 150 280

Current liabilities 398 710 970

Long-term debt (bonds) 400 500 750

Preferred stock 0 0 0

Common stock 25 25 125

Paid-in capital 75 75 175

Retained earnings 552 395 450

Total liab & equity 1450 1705 2470

NSU Unlimited, Inc.

Income Statements

2023 2022 2021

Sales 4000 4800 5800

Operating expenses 3640 4520 5560

Depreciation expense 40 40 60

EBIT 320 240 180

Interest expense 40 50 70

EBT 280 190 110

Taxes (40%) 112 76 44

NI 168 114 66

Total cash dividends 11 19 11

Refer to the comparative financial statementsabove and answer each of the following.

1. What is the company's current ratio for 2023? What is the current ratio for 2022?

B.What is the company's quick ratio (acid test ratio) for 2023? What is the company's quick ratio (acid test ratio) for 2022.

C.What is the company's net profit margin for 2023? What is the company's net profit margin for 2022?

D.What is the company's total asset turnover for 2023? What is the company's total asset turnover for 2022?

E.What is the company's debt ratio for 2023? What is the company's debt ratio for 2022?