Question

ID: A 7. In 1958 the average tuition for one year at an Ivy League school was su 00. Thirty years later, in 1988, the average cost was $13.700. What was the growth rate intuition over the 30-year period? a 12 b. 99 c. 65 d. 79 e. 89 8. You are currently investing your money in a bank account which has a nominal anal rate of 7.23 percent, compounded annually. How many years will it take for you to double your money? a 8.67 years b. 9.15 years c. 9.50 years d 9.93 years e. 10.25 years 9. For bonds, price sensitivity to a given change in interest rates generally increases as years remaining to maturity increases. a. True b. False 10. Typically, debentures have higher interest rates than mortgage bonds primarily because the mortgage bonds are backed by assets while debentures are unsecured a True b. False 11. A zero coupon bond is a bond that pays no interest and is offered and subsequently sells) at par, therefore providing compensation to investors in the form of capital appreciation. a. True b. False 12. The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things equal and held constant. a. True b. False 13. A bond with a $100 annual interest payment with five years to maturity (not expected to default) would sell for a premium if interest rates were below 9 percent and would sell for a discount if interest rates were greater than 11 percent. a. True b. False 14. One of the basic relationships in interest rate theory is that, other things held constant, for a given change in the required rate of return, the the time to maturity, the the change in price. a. longer, smaller. b. shorter, larger c. longer: greater. d. shorter, smaller. e. Answers c and d are correct.

Answer 1

7]

Ending value = beginning value * (1 + growth rate)^{number of years}

$13,700 = $1,800 * (1 + growth rate)³⁰

growth rate = ($13,700 / $1,800)^1/30 - 1

growth rate = 7%