This work is due on. Please post your work file, with your name in the file title, to the Assignment #2 file folder in the Assignments folder in Blackboard. This work represents 10% of your course grade.

Your work can be submitted on this “Word” file or you can create an answer file. I have also submitted a “pdf” file for those who use “pdf” format.


Question1:  The Time Value of Money (Chapter 5) Twenty Points

Multiple Choice Questions
(1). What is the future value of $10,000 on deposit for 5 years at 6% simple interest?
A. $7,472.58
B. $10,303.62
C. $13,000.00
D. $13,382.26


(2). What is the present value of your trust fund if it promises to pay you $50,000 on your 30th birthday (7 years from today) and earns 10% compounded annually?
A. $25,000.00
B. $25,657.91
C. $28,223.70
D. $29,411.76



(3). You will be receiving cash flows of: $1,000 today, $2,000 at end of year 1, $4,000 at end of year 3, and $6,000 at end of year 5. What is the present value of these cash flows at an interest rate of 7%?

  1. $9,731.13
  2. $10,412.27
  3. $10,524.08
  4. $11,524.91


(4). If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with monthly payments of $965.55, how much interest is paid over the life of the loan?
A. $120,000
B. $162,000
C. $181,458
D. $227,598




Question 2:  Bonds (Chapter 6) Fifteen Points

What happens to the price of a 3-year bond (with par value $1,000) with an 8% coupon when interest rates change from 8 to 6%?




Question 3:  Stocks (Chapter 7) Twenty Points

(1). Explain why the market value of common stock often differs from its liquidation value or its book value.



(2). A stock offers an expected dividend this year of $3.50, has a required return of 14%, and has historically exhibited a growth rate of 6%. Its current price is $35.00, should the investor purchase this stock? Why?