1. Underestimating the sales in your forecast could have which of the following effects on the firm?
a. The firm could acquire too many fixed assets.
b. The firm would have too high of a total asset turnover.
c. The firm would have higher costs for depreciation and storage.
d. The firm could lose market share to their competitors.
2. You are quoted an interest rate of 7% per year with monthly compounding on your car loan. Which of the following is a FALSE statement?
A. The effective annual interest rate (EAR) is greater than 7%.
B. The equivalent APR with daily compounding would be equal to 7%.
C. You have been quoted an Annual Percentage Rate.
D. The interest charged over one month is 7% divided by 12.
E. The equivalent annual rate with quarterly compounding would be greater than 7%.
3. Which one of the following bonds has the greatest interest rate risk?
A. 3-year; 4 percent coupon
B. 3-year; 6 percent coupon
C. 5-year; 6 percent coupon
D. 7-year; 6 percent coupon
E. 7-year; 4 percent coupon