Module 2 Quiz Introduction to Corporate Finance
Module 2 Quiz Introduction to Corporate Finance
What is the periodic interest rate? (I.e., what is the monthly interest rate?)
What is the effective annual rate on the loan? (I.e., what is the interest rate once we take into account compounding?)
(Hint: A mortgage is just an annuity where the borrowed amount is the present value of the annuity.
So, use the annuity formula, but solved for the cash flow in terms of the present value:
CF = \frac{PV\times R/k}{(1 – (1 + R/k))^{(-T\times k)}} (1−(1+R/k))(−T×k)PV×R/k
How much money will you have in the account after 1 year?
How much money will you have in the account after 2 years?
What is the effective annual rate of the saving account?
Based on the yield curves in the figure, what is the approximate cost of borrowing for highly rated corporate borrowers over a 5-year term?
Based on the yield curves in the figure, what is the approximate cost of borrowing for highly rated corporate borrowers over a 20-year term?
What is the annual yield-to-maturity of the bond? (I.e., what is the discount rate one needs to use to get the price of the bond given the future cash flow of \$100$100 in one year?)
You notice that the yield-to-maturity on a one year-zero coupon treasury bond is 1\%1% and the yield-to-maturity on a two year-zero coupon treasury bond is 2\%2%. What should the price of your bond be?
