Fin Problem

Name: ________________________________________

Questions are worth about 5 points each. I felt I could save you a little time by asking fewer questions from Chapter 5 and the ongoing financial crisis – so these are each worth more; however, I also felt I needed to ask more questions on Chapter 7 – so these are each worth less. The general framework of 20 points each from Chapters 1-4, 5, 6, 7, and current events still holds.

1. A "fallen angel" is a bond that: 

A. lowered its annual interest payment.

B. has moved from being a long-term obligation to being a short-term obligation.

C. has moved from having a yield to maturity in excess of the coupon rate to having a yield to maturity that is less than the coupon rate.

D. has moved from being an investment-grade bond to being a junk bond.

E. is rated as Baa by one rating agency and rated as BBB by another rating agency.

2. Some time ago, Richard purchased five acres of land costing $123,400. Today, that land is valued at $189,700. How long has he owned this land if the price of land has been increasing at 5.5 percent per year? 

A. 6.01 years

B. 6.98 years

C. 7.42 years

D. 8.03 years

E. 8.67 years

3. Which one of the following statements concerning the annual percentage rate is correct? 

A. The annual percentage rate considers interest on interest.

B. The rate of interest you actually pay on a loan is called the annual percentage rate.

C. The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.

D. When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.

E. The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.

4. On the day you enter college you borrow $18,000 from your local bank. The terms of the loan include an interest rate of 5.75 percent. The terms stipulate that the principle is due in full one year after you graduate. Interest is to be paid...