Question 1
Your firm has issued 10-year, zero-coupon bonds with a $1,000 face value. If the bonds are currently selling for $514.87, what is the yield to maturity?
Question 2
The ___________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.
Question 3
MicroMedia Inc. $1,000 par value bonds are selling for $1,265. Which of the following statements is TRUE?
Question 4
__________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.
Question 5
Bonds are different from stocks because__________.
Question 6
The four steps to determining the price of a bond are: __________.
Question 7
The practice of not putting all of your eggs in one basket is an illustration of ___________.
Question 8
Which of the statements below is NOT correct?
A. If two investments have the same expected return, the investment with the lower risk is preferred.
B. If two investments have the same expected return, the investment with the greater risk is preferred.
C. If two investments have the same expected risk, the investment with the higher expected return is preferred.
D. If one investment has a higher expected return and a greater level of risk than another, it is not clear which investment is the preferred choice.
Question 9
Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from __________ .
A. 0.0 to +10.0
B. 0.0 to +1.0
C. -1.0 to +1.0
D. There is no range; correlation is a calculated number that can take on any value.
Question 10
A more risky stock has a higher __________.
A. expected return
B. standard deviation
C. variance
D. B and C
Question 11
Stocks differ from bonds because __________ .
Question 12
Ten years ago, Bacon Signs Inc. issued 25-year, 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have fallen and the yield to maturity on the Bacon bonds is now 7%. Given this information, what is the price today for a Bacon Signs, Inc. bond?
A. $1,000
B. $1,116.54
C. $1,091.08
D. $914.41
Question 13
Stocks are different from bonds because __________.
Question 14
Which of the statements below is TRUE?
A. Investors want to maximize return and maximize risk.
B. Investors want to maximize return and minimize risk.
C. Investors want to minimize return and maximize risk.
D. Investors want to minimize return and minimize risk.
Question 15
The correlation coefficient, a measurement of the comovement between two variables, has what range?
A. From 0.0 to +10.0
B. From 0.0 to +1.0
C. From -1.0 to +10.0
D. From =1.0 to -1.0
Question 16
Diversification is __________ .
A. not putting all of your eggs in one basket
B. spreading wealth over a variety of investment opportunities
C. a common investment strategy
D. all of the above
Question 17
Shortcomings of the dividend pricing models suggest that we need a pricing model that is more inclusive than the dividend models and that provides expected returns for companies based on aspects besides their historical dividend patterns. Which of these below is NOT one of these aspects?
Question 18
Joe bought a share of stock for $47.50 that paid a dividend of $0.72 and sold one year later for $51.38. What was Joe's dollar profit or loss and holding period return?
A. $0.72, 7.55%
B. $3.88, 8.95%
C. $4.60, 9.68%
D. $3.88, 9.68%
Question 19
__________ is the absence of knowledge of the outcome of an event before it happens.
A. Return
B. Diversification
C. Uncertainty
D. Certainty
Question 20
When the __________ is less than the yield to maturity, the bond sells at a/the __________ par value.
Question 21
Berra, Inc. is currently considering an eight-year project that has an initial outlay or cost of $120,000. The future cash inflows from its project for years one through eight are the same at $30,000. Berra has a discount rate of 11%. Because of capital rationing (shortage of funds for financing), Berra wants to compute the profitability index (PI) for each project. What is the PI for Berra's current project?
A. about 1.29
B. about 1.31
C. about 1.33
D. about 1.39
Question 22
__________ corrects for most, but not all, of the problems of IRR and gives the solution in terms of a return.
Question 23
The net present value of an investment is __________ .
Question 24
In terms of revenues and costs for a project, which of the statements below is FALSE?
Question 25
The __________ model is usually considered the best of the capital budgeting decision-making models.
Question 26
Managers typically look at the initial outlay for the project as its capital expenditure and determine __________ from this capital expenditure.
Question 27
The capital budgeting decision model that utilizes all the discounted cash flow of a project is the __________ model, which is one of the single most important models in finance.
Question 28
The initial outlay or cost for a four-year project is $1,000,000. The respective cash inflows for years one, two, three and four are: $500,000, $300,000, $300,000 and $300,000. What is the discounted payback period if the discount rate is 10%?
A. about 2.67 years
B. about 3.35 years
C. about 3.67 years
D. about 4.50 years
Question 29
Without a computer and special calculator, __________.
Question 30
Find the Modified Internal Rate of Return (MIRR. for the following annual series of cash flows, given a discount rate of 10.50%: Year 0: -$75,000; Year 1: $15,000; Year 2: $16,000; Year 3: $17,000; Year 4: $17,500; and, Year 5: $18,000.
A. about 6.35%
B. about 6.88%
C. about 7.35%
D. about 7.88%
Question 31
The __________ method of capital budgeting is a ratio of the present value of cash inflows divided by the initial investment.
Question 32
__________ involve(s) a cash flow that never occurs, but we need to add it as a cost or outflow of a new project.
A. Cost recovery of divested assets
B. Capital expenditures
C. Sunk costs
D. Opportunity costs
Question 33
Which of the following in NOT a potential problem suffered by the IRR method of capital budgeting?
Question 34
__________ cash flow is the increase in cash generated by a new project above the current cash flow without the new project.
A. Future
B. Current
C. Discounted
D. Incremental
Question 35
The initial outlay or cost is $1,000,000 for a four-year project. The respective future cash inflows for years one, two, three and four are: $500,000, $300,000, $300,000, and $300,000. What is the payback period without discounting cash flows?
Question 36
__________is at the heart of corporate finance because it is concerned with making the best choices about project selection.
Question 37
Which of the statements below is FALSE?
A. We calculate the equivalent annual annuity by taking the NPV of the project and find the annuity stream that equates to the NPV, using the appropriate discount rate for the project and life of the project.
B. In dealing with mutually exclusive projects of unequal lives, we can compute the EAA for the NPV of the project over the life of the project.
C. One of the advantages of NPV over other decision models is that we can select the appropriate discount rate for each individual project and still compare the resulting NPVs across different projects. INCORRECT
D. By using the EAA approach for mutually exclusive projects, we overcome all potential problems.
Question 38
The projected revenues and costs that form the basis of the potential for a project's acceptance or rejection are estimates of __________ .
Question 39
In regard to the NPV method, which of the statements below is TRUE?
Question 40
Consider the following four-year project. The initial after-tax outlay or after-tax cost is $1,000,000. The future after-tax cash inflows for years one, two, three and four are: $400,000, $300,000, $200,000 and $200,000, respectively. What is the payback period without discounting cash flows?
A. 2.5 years
B. 3.0 years
C. 3.5 years
D. 4.0 years
ANSWER WILL BE SENT ON EMAIL.
