1. During a period when interest rates are very low by historical standards and are expected to increase substantially over time, individuals should choose
an ARM with a rate that adjusts every year for five years and then converts to a fixed rate.
an ARM with a rate that adjusts after three years.
an ARM that adjusts after one year.
a fixed-rate mortgage.
2. Asset utilization ratios
a. relate balance sheet assets to income statement sales.
b. measure how much cash is available for reinvestment into current assets.
c. are most important to stockholders.
d. measure the firm's ability to generate a profit on sales.
3. A firm has a debt-to-total assets ratio of 60%, $300,000 in debt, and a net income of $50,000. Calculate return on equity.
a. 60%
b. 20%
c. 25%
d. There is not enough information to calculate.
3. A short-term creditor would be most interested in
a. profitability ratios.
b. asset utilization ratios.
c. debt utilization ratios.
d. liquidity ratios.