FIN 534 Week 4 Quiz 3

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FIN 534 Week 4 quiz 3Question 1Which of the following statements is CORRECT?CorrectAnswer:Time lines are useful for visualizing complex problems prior to doing actualcalculations.Question 2Which of the following statements regarding a 30-year monthly payment amortized mortgagewith a nominal interest rate of 10% is CORRECT?CorrectAnswer:A larger proportion of the first monthly payment will be interest, and a smallerproportion will be principal, than for the last monthly payment.Question 3A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today.The nominalinterest rate is 6%, semiannual compounding.Which of the following statements is CORRECT?CorrectAnswer:The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity.Question 4You plan to analyze the value of a potential investment by calculating the sum of the presentvalues of its expected cash flows.Which of the following would increase the calculated value ofthe investment?Correct Answer:The discount rate decreases.Question 5

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You are considering two equally risky annuities, each of which pays $5,000 per year for 10years.Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is anannuity due.Which of the following statements is CORRECT?CorrectAnswer:A rational investor would be willing to pay more for DUE than for ORD, sotheir market prices should differ.Question 6Which of the following statements regarding a 30-year monthly payment amortized mortgagewith a nominal interest rate of 10% is CORRECT?CorrectAnswer:A smaller proportion of the last monthly payment will be interest, and a largerproportion will be principal, than for the first monthly payment.Question 7A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments.Which ofthese statements is CORRECT?AnswerCorrectAnswer:The proportion of each payment that represents interest versus repayment ofprincipal would be higher if the interest rate were higher.Question 8Which of the following statements is CORRECT?CorrectAnswer:Time lines can be constructed where some of the payments constitute an annuitybut others are unequal and thus are not part of the annuity.Question 9

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