9 Solved Questions on Financial Markets and Institutions | FINA 4400, Assignments of Financial Market

Download 9 Solved Questions on Financial Markets and Institutions | FINA 4400 and more Assignments Financial Market in PDF only on Docsity! FINA 4400 Additional Examples: Chapter 2 1. If you earn 0.5% a month in your bank account, this would be the same as earning a 6% annual interest rate with annual compounding. FALSE 2. Simple interest calculations assume the interest earned is never reinvested. TRUE 3. An investor earned a 5% nominal rate of return over the year. However, over the year prices increased by 2%. The investor's real rate of return was less than their nominal rate of return. TRUE 4. Earning a 5% interest rate with annual compounding is better than earning a 4.95% interest rate with semiannual compounding. FALSE 5. An investment pays $400 in one year, X amount of dollars in two years and $500 in 3 years. The total present value of all the cash flows (including X) is equal to $1500. If i is 6%, what is X? A. $702.83 B. $822.41 C. $789.70 D. $749.67 E. $600.00 X = [1500 - (400/1.06) - (500/1.063)]*1.062 6. An annuity and an annuity due that have the same number of payments also have the same present value if r = 10%. Which one has the higher payment? A. The annuity has the higher payment B. The annuity due has the higher payment C. They both must have the same payment since the present values are the same D. There is no way to tell which has the higher payment E. An annuity and an annuity due cannot have the same present value