Problem 1: To pay for her college education, Gina is saving $2,000 at the beginning of each year for the next eight years in a bank account paying 12 percent interest. How much will Gina have in that account at the end of 8th year?
A) $16,000
B) $17,920
C) $24,600
D) $27,552
Problem 2: Risk aversion is the behavior exhibited by managers who require a (n) ________.
A) increase in return, for a given decrease in risk
B) increase in return, for a given increase in risk
C) decrease in return, for a given increase in risk
D) decrease in return, for a given decrease in risk
Problem 3: Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk.
A) a higher; a lower
B) the same; a higher
C) the same; a lower
D) a lower; a higher
Problem 4: The ________ has/have the ultimate responsibility in guiding corporate affairs and carrying out policies.
A) board of directors
B) chief executive officer
C) stockholders
D) creditors
Problem 5: Which of the following statements is CORRECT?
A) Since in bankruptcy they must be paid in full before stockholders receive anything, corporate bondholders generally prefer to see corporate managers to invest in high risk/high return projects rather than low risk/low return projects.
B) Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful, but they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore bondholders generally want corporate managers to invest in low risk/low return projects rather than high risk/high return projects.
C) In a typical partnership, liability for other partnersâ?? misdeeds is limited to the amount of a particular partnerâ??s investment in the business.
D) One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a sole proprietor.
Problem 6: The cost of preferred stock is
A) lower than the cost of long-term debt.
B) higher than the cost of common stock.
C) higher than the cost of long-term debt and lower than the cost of common stock.
D) lower than the cost of convertible long-term debt and higher than the cost of common stock.