11) If the annual interest rate is 3%, $10 000 received today has the same present value as ________ received one year from now.
A) $10 000
B) $13 000
C) $300
D) $9707.74
E) $10 300
12) Consider a bond with a face value of $10 000, a three-year term and a coupon payment of 6% made at the end of each year. The face value of the bond is repaid at the end of the term. Which of the following equations will correctly calculate the present value of the bond?
A) PV = + +
B) PV = + +
C) PV = + +
D) PV = + +
E) PV = + +
13) In a competitive financial market, the equilibrium price of an asset will equal the
A) present value of the asset.
B) future value of the asset.
C) sum of present value of the asset multiplied by the interest rate.
D) future value of the asset multiplied by the interest rate.
E) issue price of the asset.
14) Consider a bond that promises to make coupon payments of $100 each year for three years (beginning in one year's time) and also repays the face value of $2000 at the end of the third year. If the market interest rate is 6%, what is the present value of this bond?
A) $267.30
B) $283.02
C) $1763.22
D) $1854.67
E) $1946.53
15) Consider a bond that promises to make coupon payments of $100 each year for three years (beginning in one year's time) and also repays the face value of $2000 at the end of the third year. If the market interest rate is 4%, what is the present value of this bond?
A) $288.45
B) $1866.67
C) $1941.57
D) $1966.39
E) $2055.50
16) When considering the present value of any financial asset that makes a stream of payments in the future, we know that if the market interest rate falls,
A) the present value of the asset will rise.
B) the future value of the asset will rise.
C) the current value of the asset will fall.
D) the present value of the asset will fall.
E) the present value of the asset is unaffected.
17) Consider a Government of Canada bond with a face value of $1000, and a present value of $925. If this bond is offered for sale at $960, then
A) the excess demand for the bond at $960 will drive the price up to the face value of the bond.
B) individuals will purchase the bond at the offer price which will drive the market rate of interest up.
C) individuals will purchase the bond at the offer price which will drive the market rate of interest down.
D) the equilibrium market price of this bond has been achieved.
E) the lack of demand for this bond will drive the price down until it reaches its equilibrium market price of $925.
18) Consider a Hydro Quebec bond with a face value of $1000, and a present value of $1175. If this bond is offered for sale at $1025, then
A) excess supply of this bond will drive the price down until it reaches its face value.
B) individuals will purchase the bond at the offer price which will drive down the price further.
C) excess demand for this bond will drive the price up until it reaches its equilibrium market price of $1175.
D) the equilibrium market price of this bond has been achieved.
E) Hydro Quebec will be forced to change the face value of the bond.
19) If the current market price of a bond is less than the present value of the income stream the bond will produce, the price will ________ due to excess ________ of/for the bond.
A) rise; supply
B) fall; supply
C) rise; demand
D) fall; demand
20) An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9800. The analyst should recommend
A) purchasing the bond because the buyer will earn a profit of $185.
B) purchasing the bond because the bond price is equal to its present value.
C) not purchasing the bond because the price is lower than its present value.
D) not purchasing the bond because the buyer could earn an additional $192 by investing the $9800 elsewhere.
E) not purchasing the bond because the buyer could earn an additional $392 by investing the $9800 elsewhere.
