FIN 516 Final Exam Latest Version

FIN 516 Final Exam Latest Version

Author: Abraham Nolito


Suppose the September CBOT Treasury bond futures contract has a quoted price of 89.04. What is the implied annual interest rate inherent in this futures contract? Assume this contract is based on a 20 year Treasury bond with semi-annual interest payments. The face value of the bond is $1000, and the semi-annual coupon payments are $30. The annual coupon rate on the bonds is $60 per bond (or 6%). The futures contract has 100 bonds.

Question 2.2. (TCO D) Which of the following statements is most correct?
(a) In a private placement, securities are sold to private (individual) investors rather than to institutions.
(b) Private placements occur most frequently with stocks, but bonds can also be sold in a private placement.
(c) Private placements are convenient for issuers, but the convenience is offset by higher flotation costs.
(d) The SEC requires that all private placements be handled by a registered investment banker.
(e) Private placements can generally bring in funds faster than is the case with public offerings. (Points : 20)

3. Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a 5-year, $12,000,000 bank loan to finance service equipment. The loan has an interest rate of 12percent and would be amortized over five years, with five end-of-year payments. Sutton can also lease the equipment for 5 end-of-year payments of $2,70,000 each. How much larger or smaller is the bank loan payment than the lease payment? Note: Subtract the loan payment from the lease payment
4. (TCO I) Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?

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