Midterm_MGMT_130

Midterm_MGMT_130 - MGMT 130 Midterm Exam Winter Quarter...

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MGMT 130 Midterm Exam Winter Quarter 2010 Name: _________________________________________ Section: ______ Multiple Choice For each question below, circle the best answer. Each question is worth 2 points. 1) You have $500 to invest. You have two choices: Savings Account A which earns 8% compounded annually, or Savings Account B which earns 7.75% interest, compounded semiannually. Which would you choose and why? a) Choose A because it has a higher effective annual rate b) Choose A because the future value in one year is lower c) Choose B because it has a higher effective annual rate d) Choose B because the future value in one year is lower e) Choose A because it has the higher quoted rate 2) Which of the following is a true statement? a) When comparing investments it is best to not rely solely on quoted rates b) Compounding will typically not lead to differences between the quoted rate and the effective rate c) The APR on a loan requiring monthly payments is the interest rate you actually pay d) An APR is the interest rate per period divided by the number of periods per year e) With monthly compounding, the APR will be larger than the effective annual rate 3) Which of the following risks do debt ratings specifically attempt to assess? I. Interest rate risk II. Default risk III. The risk of bonds being called a) I only b) II only c) I and II only d) II and III e) I, II, and III 4) If a project has conventional cash flows, it may also have more than one IRR a) True b) False
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5) Both the IRR and the profitability index decision rules may lead to incorrect decisions in comparisons of mutually exclusive investments. a) True b) False 6) If investment funds are limited and the projects under consideration are independent from one another, then IRR can be effectively used to rank projects to determine which ones should be accepted. a)
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This note was uploaded on 04/25/2010 for the course MGMT 130A taught by Professor Stuff during the Winter '10 term at UCLA.

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Midterm_MGMT_130 - MGMT 130 Midterm Exam Winter Quarter...

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