Your grandfather has told you that he has setup a trust for you that will pay you and your heirs $1,

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• Your grandfather has told you that he has setup a
  trust for you that will pay you and your heirs
  1,000 / year for the rest of eternity. However,
  the payments will not start for 4 years. That is,
  you will receive the first 1,000 at time t 4.
  What is the present value of this trust (at t
  0)? Use an 8 annual discount rate.

3

• You recently obtained a standard 30-year,
  fixed-rate mortgage with monthly payments. The
  mortgage is for 275,000 with a stated annual
  nominal interest rate of 5.25, compounded
  monthly. What is the required monthly payment?

4

• Jill currently has 300,000 in a brokerage
  account. The account pays a 7.5 annual interest
  rate. Assuming that Jill makes no additional
  contributions to the account, how many years will
  it take for her to have 1,000,000 in the
  account?

5

• You recently obtained a standard 30-year,
  fixed-rate mortgage with monthly payments. The
  mortgage is for 450,000 with a stated annual
  nominal interest rate of 5.25, compounded
  monthly. What portion of your 180th payment will
  go toward the repayment of principal? Assume you
  only make the requirement monthly payment.

6

• Find the present value of the end-of-year
  payments shown below. Use an 8 percent annual
  interest rate.Year Deposit
• 0 8,000
• 1 20,000
• 6 24,500
• 9 30,000

7

• What is the present value of 10-year ordinary
  annuity, paying 1,000 / year? The discount rate
  is a nominal annual rate of 8, compounded
  quarterly.

8

• You decide to form a portfolio with the following
  amounts invested in the following stocks. What is
  the expected return of the portfolio? 
• Stock Amount Beta Expected Return
• IBM 7,800 0.90 13.5
• Microsoft 1,200 1.10 14.5
• Dell 3,000 1.25 15.8
• Verisign 3,000 1.60 18.1

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• Which of the following has a beta of 1?
• a. risky technology stocks  
• b. a risk-free security  
• c. the market  
• d. every security should have a beta of 1  
• e. every security should have a beta greater
  than 1  

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• A firm has a required return of 14.2 and a beta
  of 1.63. If the risk-free rate is currently 5.4,
  what is the expected return to the market?

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• Which of the following has a beta of 0?
• a. risky technology stocks  
• b. a risk-free security  
• c. the market  
• d. every security should have a beta of 0  
• e. every security should have a beta greater
  than 0  

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• You decide to form a portfolio with the following
  amounts invested in the following stocks. What is
  the beta of the portfolio? 
• Stock Amount Beta Expected Return
• Bank of America 7,800 0.90 13.5
• General Motors 1,200 1.10 14.5
• JCPenney 3,000 1.25 15.8
• Seagate 3,000 1.60 18.1

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• If you borrow 30,000 from a local finance
  company and you agree to pay 731 per month for 4
  years, what is the nominal annual interest rate
  on the loan?

14

• Santos Energy has 9.5 semi-annual coupon bonds
  outstanding with 15 years left to maturity. The
  bonds have a face value of 1,000 and their
  current market price is 903.76. What is the
  nominal annual yield to maturity (YTM) on
  Santos's bonds?

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• A 1,000 par value Home Depot zero coupon bond
  matures in 16 years. Investors require a 7.65
  effective annual rate of return on this bond.
  What is the price of this bond?

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• Hartnett Computing has 8-year, 10.4 semiannual
  coupon bonds outstanding. The bonds have a par
  value of 1,000 and a nominal yield to maturity
  (YTM) of 9.5. What is the bond's current yield
  (annual coupon / price)?

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• Consider a coupon bond with five years to
  maturity. Which of the following statements is
  true?
• a. The value of the bond is inversely related to
  changes in the investors present required rate
  of return.  
• b. The market value of a bond will be less than
  the par value if the investors required rate of
  return is above the coupon interest rate.  
• c. This bond has more interest rate risk than a
  10-year bond with the same coupon payment.  
• d. a., b., and c. are all correct.  
• e. Only a. and b. are correct.  

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• Sea Garden Corporation issued 1,000 par, 11 1/8
  coupon bonds that have 20 years to maturity and
  pay semi-annual coupons. If investors require a
  10.2 annual rate of return on this bond (nominal
  with semi-annual compounding), what is the bonds
  price?

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• Bond A has a 9 annual coupon. Bond B has a 7
  annual coupon. Both bonds have the same maturity
  and both have a face value of 1,000. Both bonds
  also have the same 8 yield to maturity. Which of
  the following statements is most correct?
• a. Bond B trades at a discount, whereas Bond A
  trades at a premium.  
• b. If the yield to maturity for both bonds
  remains at 8, Bond As price one year from now
  will be higher than it is today, but Bond Bs
  price one year from now will be lower than it is
  today.  
• c. If the yield to maturity for both bonds
  immediately decreases to 6, Bond A will have a
  larger percentage increase in price.  
• d. a., b., and c. are all correct.  
• e. a., b., and c. are all incorrect.  

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• You wish to join the UCF alumni association. You
  have two options. You can pay 220.00 every
  year, with your first payment due now (annuity
  due). Or, you can pay 2,150.00 right now for a
  lifetime membership. Your discount rate is 5.90
  per year. What is the minimum number of years
  you must expect to live to prefer the lump sum
  payment?