Question 1

When calculating the present value of a stream of payments at a market yield of 5% compounded semi- annually, the numerator in the fourth period of the calculation is:

Accepted Answer

A)   (1.05)  to the power of 4.
B)   (1.025)  to the power of 4.
C)   (1.10)  to the power of 4.
D)   (1.0125)  to the power of 4. B

Question 2

Because zero- coupon bonds do not pay any cash payments until maturity, there is no need to apply compounding in the yield calculation.

Accepted Answer

A) True 
 B)False  False

Question 3

A customer should delay making mortgage repayments as long as possible because this reduces the present value of the interest repayments.

Accepted Answer

A) True 
 B)False  False

Question 4

For yield- to- maturity calculations, we:

Accepted Answer

A)   assume the coupon payments are invested at the same yield for the remainder of the term of the bond.
B)   ignore the face value and consider only the coupon payments.
C)   ignore the coupon payments and consider only the face value.
D)   assume the coupon payments are 'stripped' off the bond each period they occur.

Question 5

A university student is investing $100 in a deposit and can choose the compounding period that applies. To maximise the effective interest rate, she will choose___________ compounding.

Accepted Answer

A)   quarterly
B)   monthly
C)   six- monthly
D)   daily

Question 6

A mortgage is repaid in equal installments including both principal and interest.

Accepted Answer

A) True 
 B)False

Question 7

If C = $1000 and r = 5% (semi- annual), then the price (P) of a two- year annuity is:

Accepted Answer

A)   $3523.94.
B)   $3941.00.
C)   $3322.76.
D)   $3761.97.

Question 8

If a customer repays a fixed- rate mortgage early they usually receive a bonus from their bank.

Accepted Answer

A) True 
 B)False

Question 9

Explain the difference between discount securities and coupon securities. Give two examples of each.

Accepted Answer

The answer of Explain the difference between discount securities and...

Question 10

If compounding is half- yearly, interest accrues in the second half of the year on the balance of the outstanding principal at the end of the first half.

Accepted Answer

A) True 
 B)False

Question 11

Suppose you purchase a two- bedroom apartment in Adelaide for $350,000 and you were able to provide $35,000 in deposit and successfully secured a 20- year home loan at 7% for the remaining balance. What are your monthly payments?

Accepted Answer

A)   2600
B)   2532.19
C)   2442.19
D)   1800.32

Question 12

The annualised percentage that the price of a security is below its face value is called the rate.

Accepted Answer

A)   coupon
B)   market
C)   discount
D)   interest

Question 13

Which of the following countries would use 360 days (not 365) in interest rate calculations?

Accepted Answer

A)   Britain.
B)   Australia.
C)   New Zealand.
D)   France.

Question 14

A coupon bond can be regarded as the combination of:

Accepted Answer

A)   an annuity and a consol.
B)   a discount security and an annuity.
C)   an annuity and a ZCB.
D)   a discount security and a ZCB.

Question 15

If an investor buys a 90- day bill at 8.5% and sells it after 45 days, the investor will earn 8.5% per annum over the 45 days of the investment.

Accepted Answer

A) True 
 B)False

Question 16

A dollar today is worth ____________ than a dollar at some future date.

Accepted Answer

A)   less
B)   equal
C)   more
D)   It cannot be determined.

Question 17

Yield to maturity is the market interest rate.

Accepted Answer

A) True 
 B)False

Question 18

Zero- coupon bonds give the owner title to a single payment at the end of their life.

Accepted Answer

A) True 
 B)False

Question 19

An annuity provides different payments every period, but no face value payment at the end of its life.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is NOT needed to calculate the yield on a discount security?

Accepted Answer

A)   The dollar value of quarterly coupon payments.
B)   The face value.
C)   The purchase price.
D)   The maturity.

Exam 3: Introduction to Financial Calculations

When calculating the present value of a stream of payments at a market yield of 5% compounded semi- annually, the numerator in the fourth period of the calculation is:

Because zero- coupon bonds do not pay any cash payments until maturity, there is no need to apply compounding in the yield calculation.

A customer should delay making mortgage repayments as long as possible because this reduces the present value of the interest repayments.

For yield- to- maturity calculations, we:

A university student is investing $100 in a deposit and can choose the compounding period that applies. To maximise the effective interest rate, she will choose___________ compounding.

A mortgage is repaid in equal installments including both principal and interest.

If C = $1000 and r = 5% (semi- annual) , then the price (P) of a two- year annuity is:

If a customer repays a fixed- rate mortgage early they usually receive a bonus from their bank.

Explain the difference between discount securities and coupon securities. Give two examples of each.

If compounding is half- yearly, interest accrues in the second half of the year on the balance of the outstanding principal at the end of the first half.

Suppose you purchase a two- bedroom apartment in Adelaide for $350,000 and you were able to provide $35,000 in deposit and successfully secured a 20- year home loan at 7% for the remaining balance. What are your monthly payments?

The annualised percentage that the price of a security is below its face value is called the rate.

Which of the following countries would use 360 days (not 365) in interest rate calculations?

A coupon bond can be regarded as the combination of:

If an investor buys a 90- day bill at 8.5% and sells it after 45 days, the investor will earn 8.5% per annum over the 45 days of the investment.

A dollar today is worth ____________ than a dollar at some future date.

Yield to maturity is the market interest rate.

Zero- coupon bonds give the owner title to a single payment at the end of their life.

An annuity provides different payments every period, but no face value payment at the end of its life.

Which of the following is NOT needed to calculate the yield on a discount security?