Question 1

Jameson Insurance invests $100,000 for five years in a guaranteed investment certificate that pays 4% interest compounded quarterly. How much interest will Jameson earn over that period?

Accepted Answer

A)   $5,100
B)   $18,050
C)   $21,670
D)   $22,020
E)   $119,110 D

Question 2

If the principal of a bank loan is $20,000, the interest rate is 9% compounded annually and the maturity date is in 10 years, what would the total payment be if none of the principal was paid back before the maturity date?

Accepted Answer

A)   $4,734
B)   $51,880
C)   $53,640
D)   $43,440
E)   $47,348 E

Question 3

Debentures are

Accepted Answer

A)   Unsecured bonds
B)   A form of equity
C)   Convertible bonds
D)   Loans from governments
E)   Government grants A

Question 4

2,500 bonds with a term of five years, and a coupon rate of 7%, compounded annually, with payments once a year, and a face value of $1000, were issued November 1. What is the total amount that the company will have paid out at the bonds maturity?

Accepted Answer

A)   $5,032,125
B)   $3,375,000
C)   $1,623,866
D)   $3,587,675
E)   $1,232,125

Question 5

The Board of Directors of Peterson Enterprises wishes to fire the Chief Financial Officer (CFO). As part of the settlement, the company will give the CFO a check equivalent to three years worth of salary. In calculating what the future salary will be worth today, the Directors are

Accepted Answer

A)   Compounding the stream of salary payments
B)   Amortizing the value of the salary over five years
C)   Determining the value of an annuity
D)   Discounting the stream of salary payments
E)   Calculating the future value of the stream of payments

Question 6

In three years time, the Company estimates that they will need $10 million to build and equip a new plant. To achieve this target amount with a one-time investment today, how much cash would the company have to invest if the return is 12% compounded annually?

Accepted Answer

A)   $6,788,000
B)   $7,118,000
C)   $7,513,100
D)   $8,242,000
E)   $14,049,000

Question 7

Magenta Oil and Gas Exploration Inc. is issuing a $25 million, 10% bonds to partially finance a refining facility. There are no assets pledged against it for security. This type of financing is called a/an

Accepted Answer

A)   Debenture
B)   Limited bond
C)   Unlimited liability
D)   Unsecured mortgage
E)   Open ended loan

Question 8

A large Ontario municipality signed a four-year lease on paving equipment where payments of $71,698 are made at the beginning of each year with an interest rate of 10% per year, compounded annually. By the end of the contract, what will be the total cost to the city?

Accepted Answer

A)   $366,025
B)   $332,750
C)   $337,697
D)   $371,467
E)   $383,550

Question 9

Another phrase for fair value of a bond is

Accepted Answer

A)   Book value of the bond
B)   Adjusted value of the bond
C)   Market value of the bond
D)   Projected value of a bond
E)   Face value of a bond

Question 10

Ambidex is considering a bank loan of $1,800,000 to update its information system technology. It is expecting to finance the loan over five years, with annual payments, at an interest rate of 12%, compounded annually. Which of the following would provide the least cost alternative to Ambidex?

Accepted Answer

A)   Maintain the current terms.
B)   Make a down payment of 5% of the principle.
C)   Spread the payments over eight years instead of five years.
D)   Pay at the beginning, instead of at the end of the year.
E)   Make quarterly payments instead of annual ones.

Question 11

Millennium Laboratories can license one of its patented pharmaceutical products to a Japanese company for a five-year period. Millennium would like to insure that the fee it charges to the Japanese company will return no less than what the company projects it could have made had it marketed the product itself. Millennium believes it could have achieved a minimum of $400,000 in the first year, $10,500,000 in the second year, and $50 million, $65 million and $65 million at the end of each year. Given that interest rates are at 9%, what fee paid at the beginning of each year, should Millennium charge?

Accepted Answer

A)   $110,700,000
B)   $124,100,000
C)   $63,600,000
D)   $32,100,000
E)   $20,900,000

Question 12

What payment does Nick Huntley have to make monthly to a savings fund that returns 8%, compounded quarterly, if he wishes to buy out his partner when she retires in 3 years and his partner expects to receive $100,000 for her shares in their business?

Accepted Answer

A)   $3,152
B)   $3,349
C)   $11,558
D)   $11,784
E)   $12,934

Question 13

PT&T Inc. has signed a lease for a manufacturing facility and will make a $123,552 payment twice a year at the beginning of each period for 10 years. If the interest being charged is 14%, what is the total amount of interest PT&T will pay by the end of the contract?

Accepted Answer

A)   $500,836
B)   $1,070,506
C)   $1,162,624
D)   $1,488,125
E)   $2,594,036

Question 14

The Export Development Corp. (EDC) offered a $500,000 startup loan to qualifying entrepreneurs. For year one of the loan, it was interest and payment free. Subsequently, there was a two-year period where interest only payments were made at the end of each year. In Year 4, both interest and principal payments were made. The loan had to be repaid at the end of Year 8. If the interest rate charged in years 2 through 8 remained at 8% compounded annually, what was the total interest paid on the entire EDC loan.

Accepted Answer

A)   $33,026
B)   $32,000
C)   $246,894
D)   $120,494
E)   $206,143

Question 15

What is the maximum price XL Satellites can pay for a machine that is expected to produce marginal revenues of $20,000, $25,000, $30,000, $35,000, and $40,000 at the end of each year for five years if the interest rate is 10%?

Accepted Answer

A)   $100,111
B)   $110,122
C)   $113,724
D)   $121,137
E)   $150,000

Question 16

As a bond approaches within weeks of its maturity date, its market price

Accepted Answer

A)   Approaches zero
B)   Rises or drops below the face value of the bond based on current interest rates
C)   Is equal to the face value of the bond plus the total interest earned
D)   Approaches the face value of the bond
E)   Is equal to the future value of the stream of interest payments

Question 17

When Pickton Furniture offers customers two years to pay for a $4,500 bedroom suite, it uses an implicit interest rate of 16%. Furniture paid in cash is priced net of financing. How much would a couple save if they borrowed against their credit line so they could pay cash for the suite and then paid off the line in a lump sum at the end of two years? The credit line carries an interest rate of 9% per year compounded annually.

Accepted Answer

A)   $1,234
B)   $1,156
C)   $629
D)   $526
E)   $598

Question 18

What is the maximum price Genome Inc. can pay for a machine that is expected to produce marginal revenues of $20,000, $25,000, $30,000, $35,000, and $40,000 at the beginning of each year for five years if the interest rate is 10%?

Accepted Answer