201 FS 1 Debt Equity--Key - 201 Debt & Equity 1. An...

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1. An investor with excess cash is considering two possible investments. The first investment has an initial cost of $1,000, pays $100 per year for 10 years and then repays the original investment. The second investment also has an initial cost of $1,000, may pay $100 per year for an unlimited number of years and has an unpredictable future value. What kind of a financial instrument is the second investment? a. An unsecured loan b. A bond c. Common stock d. Preferred stock—CORRECTION!! e. None of the above 2. An investor with excess cash is considering two possible investments. The first investment has an initial cost of $1,000, pays $100 per year for 10 years and then repays the original investment. The second investment also has an initial cost of $1,000, may pay $100 per year for an unlimited number of years and has an unpredictable future value. If the investor chooses the second investment, what is maximum risk the investor faces? a. default risk only b. opportunity cost only c. $1,000 d. $2,000 e. None of the above 3. A company signed a $5 million, 5% 10-year note. Where will this transaction appear on the cash flow statement? a. the operating section b. the financing section c. the investing section d. both a and c e. none of the above 4. An investor with excess cash is considering two possible investments. The first investment has an initial cost of $1,000, pays $100 per year for 10 years and then repays the original investment. The second investment also has an initial cost of $1,000, may pay $100 per year for an unlimited number of years and has an unpredictable future value. What kind of a financial instrument is the first investment? a. A mortgage b. A bond c. Common stock d. Preferred stock 5. ______________ is paid at agreed upon times on any outstanding balance. a.
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This note was uploaded on 03/12/2010 for the course ACCY 201 taught by Professor Susancurtis during the Fall '09 term at University of Illinois, Urbana Champaign.

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201 FS 1 Debt Equity--Key - 201 Debt & Equity 1. An...

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