Suppose the interest rate on a one-year bond today is 6% per year, the interest rate on a one-year bond one year from now is expected to be 4% per year, and the interest rate on a one-year bond two years from now is expected to be 3% per year. Assuming risk neutral investors, what is the interest rate today on a two-year bond?

On a three-year bond?

What is the shape of the yield curve?

Gustav owns a perpetuity which pays 200 per year starting at the end of year 2. Ingrid owns a perpetuity that pays deposits X at the end of each 6 months, beginning 6 months from now. Assume a nominal annual interest rate of 8%. For what value of X is the present value of the two perpetuities equal.

The data is for stock ZZZ; price and dividend history are as follows:

Year     Beginning-of-Year Price          Dividend Paid at Year-End

2015               $118                                       $3       

2016                126                                          3       

2017                110                                          3       

2018                115                                          3       

What are the arithmetic and geometric average time-weighted rates of return for the investor?

Connie and Doris form calendar year Wolf Corporation on January 1 of the current year through the following

transfers of property and services:

From Connie:   

a.

How much income or gain, if any, must Connie recognize? What is its character if recognized?

b.

What basis will Connie have in her Wolf stock?

c.

What holding period does Connie take in the Wolf stock?

d.

Assuming the professional services qualify as organizational expenses and an appropriate

elections is made, how much can Wolf deduct in the current year?

e.

How much gain or loss does Doris recognize? What is its character if recognized?

f.

What basis will Doris have in the Wolf stock?

g.

What holding period will Doris have in the stock?

h.

What basis will Wolf Corporation have in the land?

i.

What holding period will Wolf have in the land?

1. You are considering taking a 1-year certificate in stock trading or a 1-year certificate in financial analytics. The certificate in trading will cost you $25,000 and will increase your salary by $8,000 a year for the next 5 years. The certificate in analytics will cost $40,000, and will increase your salary by $12,000 a year for the next 5 years. Based on your calculation of NPV and IRR and MIRR, which certificate will you choose? Use 10% as your discount rate.

Last year, Jane identified $62,200 as a nonbusiness bad debt. In that tax year before considering the tax implications of the nonbusiness bad debt, Jane had $124,400 of taxable income, of which $6,220 consisted of short-term capital gains. This year, Jane collected $12,440 of the amount she had previously identified as a bad debt. Hint: Section 111(c) applies in this situation. Jane treats the $62,200 nonbusiness bad debt as of which $ is carried over to the current year. Jane would have to include $ of the collection in gross income in the current year, resulting in a remaining carryover of $ .

Assuming that a partnership normally has a calendar year-end, what should the tax year-end be in the following independent cases? ?

a. Jim, a 70 percent partner, sells his partnership interest to Fred on August 10.

b. On July 13, the partnership sells its office building and moves its business across town.

c. June buys a 15 percent interest in the partnership on May 14.

d. The partnership goes out of business on February 26.

The following information pertaining Juniper Corporation is available for the year ended 2015,its first year of operations: : Pretax financial income, $200,000. Excess of tax deprecation over book depreciation equals $36,000 in 2015 (future taxable). This temporary difference (i.e., $36,000 depreciation expense) will be reversed as follows: $23,000 in 2016 and $13,000 in 2017. The tax rates of 2015, 2016 and 2017 are 30%, 25%, and 25%, respectively. Instructions: (a) Compute Juniper’s 2015 taxable income. (b) Prepare a schedule to show the derivation of the deferred tax liability at the end of 2015. (c) Prepare the journal entry to record income tax expense, deferred income tax liability, and income taxes payable of Juniper for 2015.

5. You plan to deposit $500 into a bank account now (year 0), $300 in year 2, and $1000 in year 4. How much money will be in your account in year 7, if the annual interest rate is 5%?

a. 2,345

b. 2,244

c. 2,175

d. 2,500

6. If the interest rate is 6.5%, calculate the present value of $5000 paid annually over the next 25 years

a. 69,899

b. 65,798

c. 60,898

d. 60,989

Heights of 10 year olds.

Heights of 10 year olds, regardless of gender, closely follow a normal distribution with mean 55 inches and standard deviation 6 inches. Round all answers to four decimal places.

1. What is the probability that a randomly chosen 10 year old is shorter than 57 inches?

2. What is the probability that a randomly chosen 10 year old is between 50 and 52 inches?

3. If the tallest 15% of the class is considered very tall, what is the height cutoff for very tall? inches

4. What is the height of a 10 year old who is at the 39 th percentile? inches

5. In order to ride the Great Chase ride at Six Flags America, a person must be no shorter than 42 inches. What proportion of 10 year olds cannot go on this ride?