Question 1

When a company discounts a commercial bill,this means the company:

Accepted Answer

A)  borrows funds. 
B)  buys a commercial bill. 
C)  lends surplus funds. 
D)  invests in commercial bills. 
A)  borrows funds. 
B)  buys a commercial bill. 
C)  lends surplus funds. 
D)  invests in commercial bills.

Question 2

A 90-day promissory note with a face value of $500 000 is issued at a yield of 7.789% per annum.Calculate its price.

Accepted Answer

A)  $379 971.77 
B)  $419 442.84 
C)  $490 578.08 
D)  $490 711.67 
A)  $379 971.77 
B)  $419 442.84 
C)  $490 578.08 
D)  $490 711.67

Question 3

If a company sells (discounts)a bank bill with a face value of $500 000,a term to maturity of 120 days,and a yield of 8.45% per annum,how much will the company raise on the issue? (Ignore transaction fees.)

Accepted Answer

A)  $391 295.03 
B)  $445 312.02 
C)  $486 485.05 
D)  $486 302.48 
A)  $391 295.03 
B)  $445 312.02 
C)  $486 485.05 
D)  $486 302.48

Question 4

When a holder of a commercial bill sells it before its maturity date the return to the holder is called the holding period return.

Accepted Answer

A) True 
 B)False

Question 5

The amount that an investor puts up initially for a commercial bill is called the principal.

Accepted Answer

A) True 
 B)False

Question 6

What is the present value of the following cash flow stream,discounted at 6.5% per annum,compounded monthly?
Year 1:
$1000; Year 2:
$1500; Year 3:
$2000; Year 4:
$2500

Accepted Answer

A)  $5844.58 
B)  $5863.11 
C)  $5874.79 
D)  $5986.23 
A)  $5844.58 
B)  $5863.11 
C)  $5874.79 
D)  $5986.23

Question 7

If the interest rate is 7.4% per annum,compounding quarterly,what is the future value of a six-year ordinary annuity with quarterly payments of $4000?

Accepted Answer

A)  $28 903.12 
B)  $85 938.40 
C)  $62 647.89 
D)  $103 126.09 
A)  $28 903.12 
B)  $85 938.40 
C)  $62 647.89 
D)  $103 126.09

Question 8

If you invest $13 500 for 18 months at 6.9% per annum simple interest,what is the value of your investment at the end of the 18 months?

Accepted Answer

A)  $14 431.50 
B)  $14 897.25 
C)  $21 647.25 
D)  $22 815.00 
A)  $14 431.50 
B)  $14 897.25 
C)  $21 647.25 
D)  $22 815.00

Question 9

The present value of an annuity of $11 000,received at the end of every year for ten years,where the required rate of return is 5.6% per annum,compounded annually,is:

Accepted Answer

A)  $6379.01 
B)  $7051.28 
C)  $8251.76 
D)  $82 517.62 
A)  $6379.01 
B)  $7051.28 
C)  $8251.76 
D)  $82 517.62

Question 10

If you receive $100 000 back as principal and interest for an investment of $92 368 that you made six months earlier,what simple rate of interest has been earned on your investment?

Accepted Answer

A)  7.63% per annum 
B)  15.48% per annum 
C)  16.16% per annum 
D) 16.75% per annum 
A)  7.63% per annum 
B)  15.48% per annum 
C)  16.16% per annum 
D) 16.75% per annum

Question 11

If the effective annual interest rate is known to be 19.4% on a debt that has quarterly payments,what is the annual percentage rate?

Accepted Answer

A)  19.40% 
B)  19.10% 
C)  18.13% 
D)  18.00% 
A)  19.40% 
B)  19.10% 
C)  18.13% 
D)  18.00%

Question 12

Distinguish between simple interest and compound interest.

Accepted Answer

Simple interest is the method of calcula

Question 13

You take out a loan to buy a property and agree to pay $53 000 one year from now,another $53 000 two years from now,and a final payment of $53 000 three years from now.If your interest rate is fixed at 8.5% per annum,compounded annually,calculate the value of the loan today.

Accepted Answer

A)  $135 363.19 
B)  $139 426.13 
C)  $146 543.78 
D)  $157 515.25 
A)  $135 363.19 
B)  $139 426.13 
C)  $146 543.78 
D)  $157 515.25

Question 14

If an investor purchases a commercial bill with a face value of $100 000 with a yield of 7.00% per annum and then,in 60 days,sells it at a yield of 7.50% per annum,the investor will make a capital gain on the sale of the bill.

Accepted Answer

A) True 
 B)False

Question 15

If you borrow $20 000 for four years at an interest rate of 7.23% per annum,with the interest compounding quarterly,how much will you have to pay at the end of the period?

Accepted Answer

A)  $21 485.68 
B)  $26 442.06 
C)  $25 784.00 
D)  $26 638.29 
A)  $21 485.68 
B)  $26 442.06 
C)  $25 784.00 
D)  $26 638.29

Question 16

If a company sells (discounts)a bank bill with a face value of $100 000,a term to maturity of 90 days,and a yield of 7.23% per annum,how much will the company raise on the issue? (Ignore transaction fees.)

Accepted Answer

A)  $84 869.90 
B)  $98 248.49 
C)  $98 269.99 
D)  None of given answers. 
A)  $84 869.90 
B)  $98 248.49 
C)  $98 269.99 
D)  None of given answers.

Question 17

What is the future value in four-and-a-half years of $5000 invested today at 9.50% compounded semi-annually?

Accepted Answer

A)  $6161.17 
B)  $7522.00 
C)  $7592.00 
D)  $9875.00 
A)  $6161.17 
B)  $7522.00 
C)  $7592.00 
D)  $9875.00

Question 18

If a commercial bill is sold into a market in which its yield works out higher than the yield that prevailed at the original purchase date,a capital gain would have been made.

Accepted Answer

A) True 
 B)False

Question 19

The principal of a six-month bank deposit is the amount you receive at the end of its term.

Accepted Answer

A) True 
 B)False

Question 20

If interest rates are 8.21% per annum,compounded annually,the present value of $31 000 received at the end of three years is:

Accepted Answer

A)  $2819.17 
B)  $9549.33 
C)  $24 465.80 
D)  $28 647.99 
A)  $2819.17 
B)  $9549.33 
C)  $24 465.80 
D)  $28 647.99

Exam 8: Mathematics of Finance: An Introduction to Basic Concepts and Calculations

When a company discounts a commercial bill,this means the company:

A 90-day promissory note with a face value of $500 000 is issued at a yield of 7.789% per annum.Calculate its price.

If a company sells (discounts)a bank bill with a face value of $500 000,a term to maturity of 120 days,and a yield of 8.45% per annum,how much will the company raise on the issue? (Ignore transaction fees.)

When a holder of a commercial bill sells it before its maturity date the return to the holder is called the holding period return.

The amount that an investor puts up initially for a commercial bill is called the principal.

What is the present value of the following cash flow stream,discounted at 6.5% per annum,compounded monthly? Year 1: $1000; Year 2: $1500; Year 3: $2000; Year 4: $2500

If the interest rate is 7.4% per annum,compounding quarterly,what is the future value of a six-year ordinary annuity with quarterly payments of $4000?

If you invest $13 500 for 18 months at 6.9% per annum simple interest,what is the value of your investment at the end of the 18 months?

The present value of an annuity of $11 000,received at the end of every year for ten years,where the required rate of return is 5.6% per annum,compounded annually,is:

If you receive $100 000 back as principal and interest for an investment of $92 368 that you made six months earlier,what simple rate of interest has been earned on your investment?

If the effective annual interest rate is known to be 19.4% on a debt that has quarterly payments,what is the annual percentage rate?

Distinguish between simple interest and compound interest.

You take out a loan to buy a property and agree to pay $53 000 one year from now,another $53 000 two years from now,and a final payment of $53 000 three years from now.If your interest rate is fixed at 8.5% per annum,compounded annually,calculate the value of the loan today.

If an investor purchases a commercial bill with a face value of $100 000 with a yield of 7.00% per annum and then,in 60 days,sells it at a yield of 7.50% per annum,the investor will make a capital gain on the sale of the bill.

If you borrow $20 000 for four years at an interest rate of 7.23% per annum,with the interest compounding quarterly,how much will you have to pay at the end of the period?

If a company sells (discounts)a bank bill with a face value of $100 000,a term to maturity of 90 days,and a yield of 7.23% per annum,how much will the company raise on the issue? (Ignore transaction fees.)

What is the future value in four-and-a-half years of $5000 invested today at 9.50% compounded semi-annually?

If a commercial bill is sold into a market in which its yield works out higher than the yield that prevailed at the original purchase date,a capital gain would have been made.

The principal of a six-month bank deposit is the amount you receive at the end of its term.

If interest rates are 8.21% per annum,compounded annually,the present value of $31 000 received at the end of three years is:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

Filters