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Certified Management Accountant Questions 163–167 (page: 123)

Updated On: 9-Feb-2026
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Falcon AG, a German heavy machinery manufacturer, is planning to expand its manifesting base in the US. and has been offered a special loan of $25 million by the state of Georgia. The loan is for a term of 5 years and carries an interest of 4% to be paid annually Falcons normal borrowing rate for 5-year borrowing is 6%. What is the value of this special loan to Falcon?

  1. $4.212 million.
  2. $2113 million.
  3. $6325 million,
  4. $20.788 million.

Answer(s): B

Explanation:

The value of the special loan can be calculated by computing the NPV of the loan using Falcon's normal borrowing rate of 6% for 5 periods. NPV equals $25 million minus PV of interest payments minus PV of principal. Thus, the NPV is $2.1 13 million ($25 million --[($25 million x .04 annual interest) x4.212 PV of an annuity for Syrsat6%]-- ($25 millionx747PVof$1 in5yrs. at6%]}.



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Ricardo gets a Christmas bonus of $1,500 cash. He decides to invest the whole amount in a mutual fund where it is expected to earn a return of 12%. How much will Ricardo have in the account at the end of 4 years?

  1. $2,36100
  2. $2,107 50
  3. $2.64300
  4. $2,196.00

Answer(s): A

Explanation:

Using FV factor tables, the FV factor for 12% at the end of 4 years is 1 574. Thus, the future value of the account at the end of 4 years is $2.36 1 .00(1.574 x $1 500)



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Francis wants to create an endowment income of $15,500 a year for the Cancer Research Center at the Municipal Hospital. She proposes that the first payment not be made for 3 years' time. if Francis can earn a return of 6% on her investments, what amount should she invest now?

  1. $216,999.99
  2. $243,608.33
  3. $229,916.66
  4. $258,333.33

Answer(s): C

Explanation:

The present value of the perpetuity will be $258.333.33 ($15,500 ÷ 0,06). This amount has to be invested by the end of 2 years so that the first payment of $15,500 will be received at the end of 3 years. The present value of this today is equal to the present value factor for 6% for 2 years multiplied by $258,333.33. The present value factor for 6% for 2 years is 0.890, so the solution is $229,916.66.



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What is the pence of a 10-year, 10% coupon bond with a $1 .000 face value if investors require a 12% return? Assume annual coupon payments.

  1. $565.00
  2. $322.00
  3. $604.50
  4. $887.00

Answer(s): B

Explanation:

The pence of the bond is equal to the sum of present value of the face value of the bond and the present value of the interest payments. Thus, the price is $887.00 [($1 .000 x .322 PV factor) + ($100 x 5.65 PV factor)].



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What is the duration of a 9%, 5-year Treasury bond that has a yield of 8%?

  1. 3.27
  2. 4.26
  3. 0.69
  4. 0.98

Answer(s): B

Explanation:

To calculate the duration of a bond, the present value of the cash flows associated with the bond, and the proportion of die total value of the bond that is realized in each period that the bond is held must be determined. The duration is then the product of the proportion of the value and the time (until that proportion of the value is recognized). Thus, the duration is 4.26. calculated as follows:



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