201 Debt & Equity
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?
3.
A company signed a $5 million, 5% 10year note.
Where will this transaction appear on
the cash flow statement?
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?
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 Fall '09
 SusanCurtis
 Accounting, Finance, possible investments

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