Question 1: The present value of five uneven cash flows is $2,145. At a nominal rate of 10 percent compounded annually, what is the fifth payment if payment one if $500, payment two is $600, and payments three and four are $400?
a. $245
b. $1,000
c. $500
d. $600
Question 2: Call provisions usually arise when the issuing company wants the option to:
a. retire the bonds earlier than initially planned because of a potential abundance of unnecessary capital.
b. require the mandatory retirement of bonds if market interest rates fall substantially below the stipulated coupon rate.
c. require the mandatory retirement of bonds in conjunction with the issuance of lower cost debt, thus refunding debt to take advantage of lower market rates.
d. refund their debt because interest rates are escalating.
Question 3: The underlying principles of the statement of cash flows suggests that:
a. increasing assets is the predominant use of cash and borrowing money is the predominant source of cash.
b. much like accounting debits and credits, any increase in an asset that uses cash is a debit and any increase in owners' equity and debt is a source of cash and is a credit.
c. its most important function is to identify the principal sources of cash and their respective uses.
d. all of the above
Question 4: The principal advantages of the corporate form of organization do not include:
a. ease of transferability of ownership.
b. accumulation of earnings for retention in the business.
c. limited liability.
d. greater accessibility of capital.
Question 5: Although the maturity value of a bond is fixed, changes in current interest rates will:
a. influence the amount of the semiannual coupon payment required.
b. affect the bond's yield.
c. affect inversely the market price of the bond.
d. band c
Question 6: The most obvious dissimilarity between bonds and stocks is in:
a. the contractual obligation to pay interest as opposed to no guarantee of dividend payments.
b. the lack of a contractual obligation on the part of the company to repurchase the share of stock from the shareholder.
c. the contractual promise to repurchase the bond at its date of maturity.
d. all of the above
Question 7: Assume the following facts about stock A:
Expected return of the market ( Km ) = 11%
Expected three-month USTB rate ( Krf ) = 5%
Beta coefficient for stock A ( βa) = 1.20
Stock A’s dividend just paid = $1.50
Anticipated constant growth in dividends = 4%
Today’s selling price of stock A is approximately:
a. $19.02
b. $12.00
c. $10.26
d. $18.29
Question 8: The return on a share of stock consists of two principal yields:
a. the capital gains yield and the capital appreciation yield.
b. the dividend yield and the capital gains yield.
c. the capital gains yield and the earnings per share.
d. all of the above
Question 9: Which of the following is not a source of risk?
a. liquidity risk
b. deferred consumption risk
c. maturity risk
d. default risk
Question 10: If a bank promises you $10,000 three years from now and asks that you place $7,938.32 on deposit today, what rate of interest, compounded annually, has the bank promised you?
a. 8.65%
b. 26.00%
c. 8.00%
d. 6.87%