Computation of future value of annuity and P/E ratio.

1)  The future value of an annuity is:

   A) Less than each annuity payment

   B) Equal to each annuity payment

   C) More than each annuity payment

   D) None of the above

2 ) The basic "rent" that you are charged when you borrow money is called:

   A) Inflation premium

   B) Risk premium

   C) Real rate of return

   D) None of the above

3)  A high price/earnings ratio usually indicates that a firm is a:

   A) Value stock

   B) Growth stock

   C) Convertible security

   D) Constant security

4)  Which of the following capital budgeting methods states the return of a project as a percentage?

   A) Payback period

   B) Net present value

   C) Internal rate of return

   D) None of the above

5)  According to the reinvestment rate assumption, which method of capital budgeting assumes cash flows are reinvested at the project's rate of return?

   A) Payback period

   B) Net present value

   C) Internal rate of return

   D) None of the above

6)  If an individual stock's beta is higher than 1.0, that stock is:

   A) Exactly as risky as the market.

   B) Riskier than the market.

   C) Less risky than the market.

   D) None of the above

7)  The component of the risk-adjusted discount rate that compensates the investor for holding risky assets is the:

   A) Risk-free rate

   B) Cost of capital

   C) Risk premium

   D) None of the above

8)  Zero coupon bonds:

   A) Are sold at par.

   B) Pay no interest payment

   C) Are sold at a deep discount.

   D) b and c above