1.A three-year Treasury note with a par value of $100 is currently priced to yield 3.50%. If

the coupon rate is 4% and coupon payments are made on a semi-annual basis, the bond’s

price is…

2. The firm that you work for requires that any investment o§er a return of at least 10%.

After some due diligence on a particular project, you determine that this investment will

o§er a 7.5% internal rate of return. Based on this information, you conclude

(a) the project’s net present value is strictly positive.

(b) the project’s net present value is zero.

(c) the project’s net present value is strictly negative.

(d) that there is no relation between a project’s net present value and its internal rate of

return.

3. If you put $75 in a bank account today o§ering a 4% annual yield that is compounded

quarterly, how much money will you have after 100 years?

4. You work for an insurance company that has just purchased a property for $22 million

dollars and, based on your estimates of future cash flows and required return on investment,

o§ers a net present value of $4 million dollars. The insurance company’s estimate of the

total value of the cash flows that will be received from the building is…

5. A consol bond is a bond o§ering a constant periodic interest payment forever. If a consol

bond is priced to yield 5% and pays a dividend of $250 each year, what is its current value?

(a) $250.00

(b) $5000.00

(c) $12,500.00

(d) $1.

6. You and your significant other want to buy an apartment in three years. You talk with your

bank and they o§er a savings plan o§ering a 6% annual return that is compounded on a

monthly basis. If you put $100 a month into the plan, how much will you have accumulated

after three years?

7. At retirement, you cash in your retirement savings and purchase an annuity o§ering you

an annual payment of $25,000 a year for 20 years. If the annuity is based on a 4% annual

interest rate and you will receive the first annuity payment one year from now, how much

did you save for retirement?

8. A ten-year corporate bond is priced at its par value of $1,000. If the coupon rate is 4%,

the corresponding yield to maturity….

1

(a) is less than 4%.

(b) is equal to 4%.

(c) is more than 4%.

(d) cannot be determined due to insu¢cient information.

9. The current price of a five-year Treasury bond is $101.50. If the bond has a par value of

$100 and a coupon rate of 5%, where coupon payments are made on a semi-annual basis,

the bond’s yield to maturity is…

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