Que: - (1) Which one of the following statements is true about an amortized loan
ID: 2761996 • Letter: Q
Question
Que: - (1)
Which one of the following statements is true about an amortized loan?
A.
With an amortized loan, a smaller proportion of each month’s payment goes toward interest in the early periods.
B.
With an amortized loan, a bigger proportion of each month’s payment goes toward interest in the later periods.
C.
With an amortized loan, a bigger proportion of each month’s payment goes toward interest in the early periods.
D.
With an amortized loan, the proportion of the loan that goes toward interest does not change at any point.
(2) Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called:
A.
an annuity due.
B.
a growing perpetuity.
C.
an ordinary annuity.
D.
a growing annuity.
(3)
If your investment pays the same amount at the end of each year forever, the cash flow stream is called:
A.
an ordinary annuity.
B.
a perpetuity.
C.
an annuity due.
D.
none of the above.
(4)
Use the following table to calculate the expected return for the asset.
Return
Probability
0.10
0.30
0.20
0.50
0.25
0.25
A.
15.0%
B.
17.5%
C.
18.75%
D.
19.25%
(5)
George purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is the total return to George from owning the stock? (Round your answer to the nearest whole percent.)
A.
5%
B.
44%
C.
35%
D.
50%
(6)
Barbara purchased a piece of real estate last year for $85,000. The real estate is now worth $102,000. If Barbara needs to have a total return of 25 percent during the year, then what is the dollar amount of income that she needed to have to reach her objective?
A.
$3,750
B.
$4,250
C.
$4,750
D.
$5,250
(7)
The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz?
A.
8.40%
B.
10.80%
C.
13.80%
D.
19.20%
A.
With an amortized loan, a smaller proportion of each month’s payment goes toward interest in the early periods.
B.
With an amortized loan, a bigger proportion of each month’s payment goes toward interest in the later periods.
C.
With an amortized loan, a bigger proportion of each month’s payment goes toward interest in the early periods.
D.
With an amortized loan, the proportion of the loan that goes toward interest does not change at any point.
Explanation / Answer
Answer to Q 1 : "C"
Which one of the following statements is true about an amortized loan?
With an amortized loan, a bigger proportion of each month’s payment goes toward interest in the early periods
Answer to Q 2 : "B "
Your investment in a small business venture will produce cash flows that increase by 15 percent every year for the next 25 years. This cash flow stream is called: a growing perpetuity
Answer to Q 3 : "C "
If your investment pays the same amount at the end of each year forever, the cash flow stream is called:
an annuity due.
Answer to Q 4 : The Question is INCORRECT. The total probability should be 1.00. Here 1.05
Answer to Q 5: "D" that is 50%
Total return = 20 + 2.5 = 22.5 and Investment = 45
return rate = 22.5 / 45 = 50%
Answer to Q 6: "B"
Investment = 85,000, required rate of retunr 25% that is $ 21,250
Total required current value shoudl be 85000+21250 = $ 106,250
But, current value = $ 102,000
the difference = 106250 -102000 = $ 4,250
Answer to Q 7: "B"
formula = Risk free rate + beta * Risk Premium
= 3% + 1.8 * 6
= 3% + 10.8% = 13.8%