You plan to invest an amount of money in five-year certificateof deposit (CD) at your bank. The stated interest rate applied tothe CD is 12 percent, compounded monthly. How much must you investif you want the balance in the CD account to be $8,500 in fiveyears?A. $4,678.82B. $4,823.13C. $13,600.00D. $14,979.90E. $7,589.29 You want to buy a Nissan 350Z on your 27th birthday. You havepriced these cars and found that they currently sell for $30,000.You believe that the price will increase by 5 percent per yearuntil you are ready to buy. You can presently invest to earn 14percent. If you just turned 20 years old, how much must you investat the end of each of the next 7 years to be able to purchase theNissan in 7 years?A. $4,945.57B. $3,933.93C. $7,714.72D. $3,450.82E. $6,030.43 Assume that the expectations theory holds, and that liquidity andmaturity risk premiums are zero. If the annual rate of interest ona 2-year Treasury bond is 10.5 percent and the rate on a 1-yearTreasury bond is 12 percent, what rate of interest should youexpect on a 1-year Treasury bond one year from now?A. 9.0%B. 9.5%C. 10.0%D. 10.5%E. 11.0% Which of the following statements is correct?A. For the most part, our federal tax rates are progressive,because higher incomes are taxed at higher average rates.B. Bonds issued by a municipality such as the city of Miami wouldcarry a lower interest rate than bonds with the same risk andmaturity issued by a private corporation such as Florida Power& Light.C. Our federal tax laws tend to encourage corporations to financewith debt rather than with equity securities.D. Our federal tax laws encourage the managers of corporations withsurplus cash to invest it in stocks rather than in bonds. However,other factors may offset tax considerations.E. All of the above statements are true. Assume that the current interest rate on a 1-year bond is 8percent, the current rate on a 2-year bond is 10 percent, and thecurrent rate on a 3-year bond is 12 percent. If the expectationstheory of the term structure is correct, what is the 1-yearinterest rate expected during Year 3? (Base your answer on anarithmetic rather than geometric average.)A. 12.0%B. 16.0%C. 13.5%D. 10.5%E. 14.0%
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