FI3300: CORPORATE FINANCEProblem Set 1 Chapters 6-91. What is the real rate of interest?a. the nominal rate of interestb. the actual return after inflationc. the coupon on a bondd. the inflation rate2. A saving account that pays a 10% stated interest rate p.a. has the highest future value if it exhibits ___________________ compounding.a. Yearlyb. Semiannuallyc. Quarterlyd. Monthly3. The yield to maturity of a bond is the same as which of the following?a. the interest rateb. the couponc. the priced. all of the above4. What is a zero coupon bond?a. a fixed income investment with no payments until maturityb. a bond with a coupon that has a zero on itc. a bond with the same yield as its coupon (zero difference)d. a and c are true statements5. You recently sold some stock your parents purchased for you in 1981 (25 years). You received$12,717.63. Your parents paid $2,000. What was the average annual return?a. 7.68%b. 8.53%c. 6%d. $10,717.636. You just deposited $4000 into a bank account paying 5% compounded semi-annually. How much money will you have after two years?a. $4,202b. $4,400c. $4,415d. $4,8627. Assume an interest rate of 8%. You are indifferent between receiving $5,000 in 4 years or $______ today.a. 3,402.92b. 3,969.16c. 3,756.57d. 3,675.158. Assume a deposit of $1,000.00 is worth $2,000.00 in eight years. The interest rate on the account was _____%.a. 4.05b. 6.05c. 8.05d. 9.059. A deposit of $2,315.25 will become $3,257.79 in ___ years. The account earns 6%. a. 4.86b. 5.36c. 5.86d. 6.3610. The value at time 0 of receiving $1,000 per year beginning in year fifteen and ending in year thirty is $_________. Assume a 6% interest rate.a. 10,105.90b. 5,380.99c. 4,469.85d. 3,120.4011. The value at time 0 of $400 per year forever with the first payment received in exactly one year is$______. Assume an interest rate of 10%.a. 4,000.00b. 4,333.33c. 4,444.44d. 4,555.4512. Assume you borrow $300,000 to buy a house. You commit to making monthly payments for 30years. The rate on your loan is 6.000%. After 200 monthly payments you owe $_______ to yourmortgage company.a. 173,234.51b. 145,689.23c. 175,456.89d. 197,770.5413. Assume a bond pays semi-annually, has 5 years to maturity, and has a 7.00% coupon. The discountrate is 8.00%. If the bond has a par value of $1,000 then it should sell for $_____.a. 1,041.58b. 1,041.00c. 960.07d. 959.4514. Assume a bond has 10 years to maturity, pays semi-annually, has a par value of $1,000 and sell for$935.00. The discount rate is 9.00%. The coupon rate of this bond is _____%.a. 3.5b. 5.0c. 4.0d. 8.015. A firm just paid a dividend of $2.00 next year. The required rate of return is 11% and dividends areexpected to grow at 6% forever. The stock should sell for $_______.a. 69.80b. 38.10c. 40.00d. 42.4016. The common stock of Darkover Inc just paid a dividend of $2.00 per share. The dividend isexpected to grow at a constant rate forever. The required rate of return for this stock is 10%. If thecurrent price is $30.00 then the expected growth rate is ____%.a. 3.125b. 5.000c. 7.125d. 917. A firm expects dividends to grow at 20% for the next two years and 5% thereafter. The firm justpaid a dividend of $1.50 and the required rate of return is 10%. The stock should sell for $______.a. 36.86b. 37.86c. 39.86d. 40.9118. Which of the following is a correct statement?a. a bond with a 9% coupon will sell at a premium if the yield to maturity is less than 9%.b. bonds are similar to preferred stock because owners of both can vote c. bonds are fixed income securities and the price does not fluctuated. a bond with a 7% coupon will sell at a premium if the yield to maturity is more than 7%19. What is the price of a 12% coupon bond with 15 years to maturity and face value $1,000 that is priced to yield 8.5%? a. 761.62b. 1000.00c. 1290.65d. 2039.8820. Problem 30 in the book chapter 7 (page 223). 21. An annual annuity payment of $100 for fifteen years would be worth $1,500 today if the interestrate were…a. 0.0%b. 2.5%c. 3.0%d. 10.0%e. impossible to determine with the information provided.22. You recently made a $25,000 investment in a gem mining partnership. The general partnerssaid you would receive a 10% return on your investment over the four-year life of the partnership. Theestimated cash flows of the investment are indicated below. How much must the partners pay you in year4 to assure you receive a 10% return? 0 1 2 3 4-$25,000 $8000 $5000 $0 ???Find out the NPV assuming a cash flow of 0 at t = 4CF0= 0, CF1 = 8000, F1 = 1, CF2 = 5,000, F2 = 1, CF3 = 0, F3 =1, CF4 = 0, F4 = 1, I = 10%, NPV =11,404.96The PV of cash flow at T= 4 is the difference between cost and NPV, which is (25,000-11,404.96) =13,595.04 Now find out the FV of 13,595.04 at t = 4PV = -13,595.04, PMT = 0, 1/Y = 10%, N=4, FV =? 19,904.5023. If you deposit $4,000 into a Roth IRA annually –that means each year – from age 22 – 55 (33years), how much will you have if your return is 5%? What if your return is 10%? (8 points)5% 10% 24. What is the monthly mortgage payment on a 15 year $200,000 loan with an interest rate of 6%?After 10 years how much have you paid in interest?Monthly Payments Total Interest years 1 – 10 25. The value in one year (t=1) of receiving $700 per year for 13 years with the first payment beginningin three years (t=3) is ____%. Assume a 6% interest rate.a. 4,191.92b. 5,846.11c. 5,515.20d. 6,196.8826. Joe is 25 today. He will make a deposit into a retirement account on his birthday (including today)until he turns 65. The account earns 8%. He wants to withdraw $50,000 per year starting on his 66thbirthday and ending on his 85th birthday. How much must he deposit each year?a. 1,748.36b. 1,897.98c. 2,001.25d. 2,025.36.This is an annuity due problem.BGN mode,N = 20, PMT =50,000, 1/Y = 8%, FV = 0, PV =? 530,179.96 (at t = 66)N = 41, 1/Y = 8%, PV = 0, FV =530,179.96, PMT = ? 1,748.3627. You need to pay for your children’s college education. You have triplets that have just had their firstbirthday. By the time they reach age 18, you feel college will cost $18,000 per year per child or$54,000 per year for 4 years beginning 17 years from now. You plan to have all the money required forthe children to complete 4 years of school when they enter college at age 18, which is 17 years fromtoday. How much should you save annually in order