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Damil4real

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Curt Hart, CFA, sold Pride Mining for $80 per share. Harf bought Pride Mining for $20 per share five years ago. Calculate the investment’s approximate continuously compounded return.
A) 25%
B) 28%
C) 32%
Jon Pelker plans to retire in six years and will require $950,000. Today, Pelker will deposit $100,000 into an interest bearing account and will set aside additional $100,000 at the end of each of the next six years. What percentage return must Pelker earn to achieve his goal of $950,000 for his retirement?
A) 8%
B) 10%
C) 18%
XYZ Company has decided to issue $10 million of unsecured bonds. If issued today, the 4% semi-annual coupon bonds would require a market interest rate of 12%. Under U.S. GAAP, which of the following statements about the cash flow statement impact is most correct?
A) The coupon payments will decrease operating cash flow and the discount, when paid, will decrease financing cash flow.
B) The periodic interest expense will decrease operating cash flow and the discount, when paid, will decrease financing cash flow.
C) The coupon payments and the discount, when paid, will decrease financing cash flow.
 
C (80/20)^(1-5)-1
B - 7.63% (Beg, n=7, fv = -950,000, pmt = 100,000)
A
 
Correct Answers:
B
B
A
Pretty upset/disappointed that I got the 2nd question wrong.
I was doing (N=6, PV = -100,000, FV = 950,000; PMT = 100,000). Couldn’t get the answer!
I really get confused with these TVM questions now…., it’s depressing! Is there a trick for these types of questions? Cuz I can’t afford to get these types of questions wrong!!
 
Can someone also please explain answer to 3rd question?
thanks!
 
Shouldn’t Question 1 be C?
N= 5 PV=-20 FV=80
I=31.95%
A
i=25%, would be the percentage of profit but not the total return.
 
Chuckrox8 Wrote:
——————————————————-
> Shouldn’t Question 1 be C?
>
> N= 5 PV=-20 FV=80
>
> I=31.95%
>
> A
> i=25%, would be the percentage of profit but not
> the total return.
I picked C as the answer, but the correct answer is B.
ln(80/20)^1/5 = 0.2777 = 0.28 = 28%
I’m still trying to understand the answer.
 
C
B
C
#3 - Discount bonds overstate CFO, then would’nt A & B have to be wrong?
 
Damil4real Wrote:
——————————————————-
> Chuckrox8 Wrote:
> ————————————————–
> —–
> > Shouldn’t Question 1 be C?
> >
> > N= 5 PV=-20 FV=80
> >
> > I=31.95%
> >
> > A
> > i=25%, would be the percentage of profit but
> not
> > the total return.
>
>
> I picked C as the answer, but the correct answer
> is B.
>
> ln(80/20)^1/5 = 0.2777 = 0.28 = 28%
>
> I’m still trying to understand the answer.
i solved like this,
80=20 exp(5*x)
where exp is the exponential function
this would give
4=exp(5x)
taking log on both side we get
log(4)=5x
or x=log(4)/5;
 
for Q 1: 20/80 = .25
.25 (e^x on your calc) = 1.28
subtract 1 = .28 continuously compounded
for question 3- the full int expense is deducted in the NI calculation that starts CFO. the amort of the discount portion would be added back to CFO in the non-cash adjustments, leaving just the coupon remaining to effect the bottom line CFO. When you pay off the bond, reduce CFF by the par value.
Is the first part of my statement correct or do I have it backwards (added or subtracted)?
 
ln 80/20 / 5 is the correct answer for 1. Don’t need to do anything else.
 
Draw the time line:
You will have 7 payments of 100000 in six years per question
At the ending year 950000 -100000=850000
Now it is a plain annuity due question
Set calci to beg mode
Fvad = 850000 pmt =-100000 n = 6 solve I/y
 
Damil4real Wrote:
——————————————————-
> Correct Answers:
>
> B
> B
> A
>
> Pretty upset/disappointed that I got the 2nd
> question wrong.
>
> I was doing (N=6, PV = -100,000, FV = 950,000; PMT
> = 100,000). Couldn’t get the answer!
>
> I really get confused with these TVM questions
> now…., it’s depressing! Is there a trick for
> these types of questions? Cuz I can’t afford to
> get these types of questions wrong!!
For you PMT, it needs to be a -100,000. The reason is because you are not receiving that 100,000 at the end of each year. You are paying 100,000 into your account at the end of each year, so that has to be a negative. On bonds, when you receive the coupons, this payment is positive because you are receiving and not paying. So for payment, you just need to decide if you are making a payment or receiving a payment. Does that make sense? Let me know if it doesn’t cause sometimes I explain poorly
 
FINDIS07 Wrote:
——————————————————-
> Could someone please post the key stroke for Q2 -
> using TVM?
N= 6
PV = -100,000
PMT = -100,000
FV = 950,000
solve for I
 
raw Wrote:
——————————————————-
> Damil4real Wrote:
> ————————————————–
> —–
> > Correct Answers:
> >
> > B
> > B
> > A
> >
> > Pretty upset/disappointed that I got the 2nd
> > question wrong.
> >
> > I was doing (N=6, PV = -100,000, FV = 950,000;
> PMT
> > = 100,000). Couldn’t get the answer!
> >
> > I really get confused with these TVM questions
> > now…., it’s depressing! Is there a trick for
> > these types of questions? Cuz I can’t afford to
> > get these types of questions wrong!!
>
>
> For you PMT, it needs to be a -100,000. The
> reason is because you are not receiving that
> 100,000 at the end of each year. You are paying
> 100,000 into your account at the end of each year,
> so that has to be a negative. On bonds, when you
> receive the coupons, this payment is positive
> because you are receiving and not paying. So for
> payment, you just need to decide if you are making
> a payment or receiving a payment. Does that make
> sense? Let me know if it doesn’t cause sometimes
> I explain poorly
Thanks, I got it perfectly now!
 
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