Project P requires an investment of 4000 today. The investment pays 2000 one year from today and 4000 two years from today. Project Q requires an investment of X two years from today. The investment pays 2000 today and 4000 one year from today. The net present values of the two projects are equal at an annual effective interest rate of 10%.

Calculate X.

• 5400
• 5420
• 5440
• 5460
• 5480

The current price of an annual coupon bond is 100. The yield to maturity is an annual effective rate of 8%. The derivative of the price of the bond with respect to the yield to maturity is -700.

Using the bond’s yield rate, calculate the Macaulay duration of the bond in years.

• 7.00
• 7.49
• 7.56
• 7.69
• 8.00

A common stock pays a constant dividend at the end of each year into perpetuity.

Using an annual effective interest rate of 10%, calculate the Macaulay duration of the stock.

• 7 years
• 9 years
• 11 years
• 19 years
• 27 years

A common stock pays dividends at the end of each year into perpetuity. Assume that the dividend increases by 2% each year.

Using an annual effective interest rate of 5%, calculate the Macaulay duration of the stock in years.

• 27
• 35
• 44
• 52
• 58

Kylie bought a 7-year, 5000 par value bond with an annual coupon rate of 7.6% paid semiannually. She bought the bond with no premium or discount.

Calculate the Macaulay duration of this bond with respect to the yield rate on the bond.

• 5.16
• 5.35
• 5.56
• 5.77
• 5.99

Krishna buys an n-year 1000 bond at par. The Macaulay duration is 7.959 years using an annual effective interest rate of 7.2%.

Calculate the estimated price of the bond, using the first-order modified approximation, if the interest rate rises to 8.0%.

• 940.60
• 942.88
• 944.56
• 947.03
• 948.47

The prices of zero-coupon bonds are:

Calculate the one-year forward rate, deferred two years

• 0.048
• 0.050
• 0.052
• 0.054
• 0.056

Sam buys an eight-year, 5000 par bond with an annual coupon rate of 5%, paid annually. The bond sells for 5000. Let [math]d_1[/math] be the Macaulay duration just before the first coupon is paid. Let [math]d_2[/math] be the Macaulay duration just after the first coupon is paid.

Calculate [math]d_1/d_2[/math].

• 0.91
• 0.93
• 0.95
• 0.97
• 1.00

You are given the following term structure of interest rates:

Calculate the one-year forward rate, deferred four years, implied by this term structure.

• 9.5%
• 10.0%
• 11.5%
• 12.0%
• 12.5%

Seth has two retirement benefit options. His first option is to receive a lump sum of 374,500 at retirement. His second option is to receive monthly payments for 25 years starting one month after retirement. For the first year, the amount of each monthly payment is 2000. For each subsequent year, the monthly payments are 2% more than the monthly payments from the previous year. Using an annual nominal interest rate of 6%, compounded monthly, the present value of the second option is P.

Determine which of the following is true.

• P is 323,440 more than the lump sum option amount.
• P is 107,170 more than the lump sum option amount.
• The lump sum option amount is equal to P.
• The lump sum option amount is 60 more than P.
• The lump sum option amount is 64,090 more than P.