1. The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the
A. the expectations hypothesis
B. segmentation theory
C. the liguidity premium theory
D. market credit crunch theory
2. The market allocates capital to companies based on
A. risk
B. efficiency
C. expected returns
D. all of the above
3. As the interest rate increases, the present value of an amount to be received at the end of a fixed period
A. increases
B. decreases
C. remains the same
D. not enough information to tell
4. A conservative financing plan involves
A. heavy reliance on debt
B. heavy reliance on equity
C. high degree of financial leverage
D. high degree of combined leverage
5. At age 5, how much would you have to save per month to have $1 million in your account at age 65, if your investment reate was 10% per year? Assume no taxes and compounding on a monthly basis
A. $213.30
B. $21.23
C. $274.60
D. can't be done with these assumptions
6. the extent to which inventory financing may be use depends on
A. marketability of pledged goods
B. price stability of goods
C. perishability of goods
D. all of the above
7. After 20 years, 100 shares of stock originally purchased for $1000 was sold for $5000. What was the yield on the investment? Choose the closest answer.
A. 19%
B. 5%
C. 12.7%
D. 8%
8. Unders normal conditions (70% probability), Financing Plan A will produce $24,000 higher than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less then Plan B. What is the expected value of return for Plan A ove Plan B
A. $28,800
B. $4,000
C. $4,800
D. 35,2000
9. When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of General Motor's stock, General Motors receives:
A. the "spread" between the Bid and Ask of the transaction.
B. the dollar amount of the transaction, less brokerage fees.
C. only the par value of the common stock
D. nothing
10. Corporations that do not issue financial securities such as stock or debt obligations:
A. will not be able to increase sales
B. cannot be profitable
C. generate sufficient funds to fullfill their needs
D. do not face double taxation of their profits
This is not a test-taking service. You have to make an effort.
1C; 2D; 3C ..
1C; 2D; 3C; 4D; 5A ; 6B; 7C; 8C; 9A; 10D
1. C. the liquidity premium theory
2. D. all of the above
3. B. decreases
4. B. heavy reliance on equity
5. A. $213.30
6. D. all of the above
7. C. 12.7%
8. C. $4,800
9. D. nothing
10. C. generate sufficient funds to fulfill their needs
1. The answer is C. The belief that investors require a higher return to entice them into holding long-term securities is described by the liquidity premium theory. To arrive at this answer, you would need to understand the different theories related to the term structure of interest rates and the factors that influence investors' demand for different maturities of securities.
2. The answer is D. The market allocates capital to companies based on a combination of factors including risk, efficiency, and expected returns. This is a fundamental principle of how financial markets work, as investors evaluate different companies and allocate their capital accordingly.
3. The answer is B. As the interest rate increases, the present value of an amount to be received at the end of a fixed period decreases. To understand this concept, you would need to know how to calculate the present value of future cash flows using the appropriate interest rate and time period.
4. The answer is B. A conservative financing plan involves heavy reliance on equity rather than debt. This means that the company is using more of its own funds, rather than borrowing heavily from external sources. Understanding the concept of financing plans and the trade-offs between equity and debt is important to arrive at this answer.
5. The answer is A. To calculate the savings needed per month, you would need to use the present value formula to solve for the monthly savings required to accumulate $1 million at the given interest rate over the specified time period.
6. The answer is D. The extent to which inventory financing may be used depends on all of the factors mentioned - the marketability of pledged goods, price stability of goods, and perishability of goods. Understanding inventory financing and the considerations involved in using it is essential to arrive at this answer.
7. The answer is C. To calculate the yield on the investment, you would need to determine the percentage increase in value over the original cost of the investment (using the formula: ((Sale Price - Purchase Price) / Purchase Price) * 100).
8. The answer is A. To calculate the expected value of return, you would need to multiply the probability of each scenario occurring by the corresponding return of that scenario, and then sum the results.
9. The answer is D. When Patricia sells her General Motors common stock to Brian, General Motors does not directly receive anything. The transaction occurs between the investors, and the company does not directly benefit from the transaction.
10. The answer is C. Corporations that do not issue financial securities such as stock or debt obligations can still generate sufficient funds to fulfill their needs. This can be done through other means, such as reinvesting profits or obtaining financing from non-traditional sources. Understanding the different ways in which corporations can raise funds is important to reach this answer.