1. The effect of an efficient portfolio is that systematic risk is largely eliminated.

True

False

2. A firm that has recurring, temporary needs for short term financing and a restrictive working capital policy will most likely:

issue bonds

establish a revolving line of credit with a bank

issue new stock

reduce the dividend it pays

3. The Required Rate of Return for a firm's stock is calculated with the CAPM. That Rate is also used as the Cost of Equity when calculating that firm's WACC.

True

False

4. All of the following are true EXCEPT:

Total liabilities & equity - equity - current liabilities = long term liabilities

Equity + Liabilities = Assets

Long term assets = equity-current assets

Current assets - current liabilities = Net Working Capital

At age 66 you begin receiving monthly (m=12) social security payments of $2,100 at the end of each month. If you expect to live until age 86 (20 more years), and the discount rate is 3.2%, what is the present value of your social security benefit?

5. You buy a house and finance it with a $250,000 30-year mortgage loan that requires equal payments at the end of each month. Your APR is set at 5.4%. What would be the amount of each of your monthly payments?

6. If the market interest rate is higher than the coupon rate of a bond, the bond will sell at a premium.

True

False

7. Which of the below is TRUE?

A decrease in borrowings will increase cash flow to creditors

An increase in borrowings will decrease cash flow to stockholders

An increase in dividends paid will decrease cash flow to stockholders

Issuing new stock will increase cash flow to stockholders