1) If the inflation premium for a bond goes up, the price of the bond
A.is unaffected.
B.goes down.
C.goes up.
D.need more information
2) The interest factor for the present value of a single amount is the inverse of the future value interest factor.
A. True
B. False
3) The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.
A. True
B. False
4) The longer the time to maturity:
A.the greater the price increase from an increase in interest rates.
B.the less the price increase from an increase in interest rates.
C.the greater the price increase from a decrease in interest rates.
D.the less the price decrease from a decrease in interest rates.
5) As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
A. True
B. False
6) Financial capital does not include
A.stock.
B.bonds.
C.preferred stock.
D.working capital.
7) The growth rate for the firm's common stock is 7%. The firm s preferred stock is paying an annual dividend of $3. What is the preferred stock price if the required rate of return is 8%?
A.$3.00
B.$37.50
C.$50.00
D.none of these
8) In paying off a mortgage loan, the amount of the periodic payment that goes toward the reduction of principal increases over the life of the mortgage.
A. True
B. False
9) The calculation of the cost of capital depends upon historical costs of funds.
A. True
B. False
10) The calculation of the cost of capital depends upon historical costs of funds.
A. True
B. False
11) As the interest rate increases, the interest factor (IF) for the present value of $1 increases.
A. True
B. False
12) An annuity may be defined as
A.a payment at a fixed interest rate.
B.a series of payments of unequal amount.
C.a series of yearly payments.
D.a series of consecutive payments of equal amounts.
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13) As the time period until receipt increases, the present value of an amount at a fixed interest rate
A.decreases.
B.remains the same.
C.increases.
D.Not enough information to tell.
14) Within the capital asset pricing model
A.the risk-free rate is usually higher than the return in the market.
B.the higher the beta the lower the required rate of return.
C.beta measures the volatility of an individual stock relative to a stock market index.
D.two of the above are true.
15) The risk premium is primarily concerned with business risk, financial risk, and inflation risk.
A. True
B. False
16) When inflation rises, preferred stock prices fall.
A. True
B. False
17) If the inflation premium for a bond goes up, the price of the bond
A.is unaffected.
B.goes down.
C.goes up.
D.need more information.
18) The cost of capital for each source of funds is dependent on current market conditions and expected rates of return.
A. True
B. False
19) The time value of money is not a useful concept in determining the value of a bond or in capital investment decisions.
A. True
B. False
20) The time value of money concept becomes less critical as the prime rate increases.
A. True
B. False
21) If a single amount were put on deposit at a given interest rate and allowed to grow, its future value could be determined by reference to the future value of $1 table.
A. True
B. False
22) The risk premium is equal to the required yield to maturity minus both the real rate of return and the inflation premium.
A. True
B. False
23) The required return by investors is important to financial managers for all of the following reasons except:
A.It influences the firm's cost of financing
B.It influences their stock price
C.It is the primary driver of their financial ratios
D.It helps when pricing new issues of securities
24) Lewis, Schultz and Nobel Development Corp. has an after-tax cost of debt of 4.5 percent. With a tax rate of 30 percent, what is the yield on the debt?
A.4.41%
B.9.0%
C.1.89%
D.6.43%
25) You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?
A.Present value of an annuity of $1
B.Future value of an annuity
C.Present value of $1
D.Future value of $1