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Practice+question+Midterm - Midterm Exam Form A Financial...

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Midterm Exam – Form A Financial Economics 220:393:02 – Fall 2009 Instructor: Diep Duong Student: ___________________________________________________________________________ 1
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Bond Valuation Mid-term Econ 393 Key 1. A 16-year, 4.5 percent coupon bond pays interest annually. The bond has a face value of $1,000. What is the percentage change in the price of this bond if the market yield to maturity rises to 5.7 percent from the current rate of 5.5 percent? A. 2.14 percent decrease B. 1.97 percent decrease C. 0.21 percent increase D. 1.97 percent increase E. 2.14 percent increase 2
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2. The higher the degree of financial leverage employed by a firm, the: A. higher the probability that the firm will encounter financial distress. B. lower the amount of debt incurred. C. less debt a firm has per dollar of total assets. D. higher the number of outstanding shares of stock. E. lower the balance in accounts payable. Refer to section 2.1 3
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3. A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. market rates B. comparable corporate bond rates C. the risk-free rate D. inflation E. maturity Refer to section 7.7 4
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4. You are comparing two annuities which offer quarterly payments of $2,500 for five years and pay 0.75 percent interest per month. Annuity A will pay you on the first of each month while annuity B will pay you on the last day of each month. Which one of the following statements is correct concerning these two annuities? A. These two annuities have equal present values but unequal futures values at the end of year five. B. These two annuities have equal present values as of today and equal future values at the end of year five. C. Annuity B is an annuity due. D. Annuity A has a smaller future value than annuity B. E. Annuity B has a smaller present value than annuity A. Refer to section 6.2 5
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5. Which one of the following statements related to liquidity is correct? A. Liquid assets tend to earn a high rate of return. B. Liquid assets are valuable to a firm. C. Liquid assets are defined as assets that can be sold quickly regardless of the price obtained. D. Inventory is more liquid than accounts receivable because inventory is tangible. E. Any asset that can be sold within the next year is considered liquid. Refer to section 2.1 6
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6. A bond that has only one payment, which occurs at maturity, defines which one of the following? A. debenture B. callable C. floating-rate D. junk E. zero coupon Refer to section 7.4 7
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7. A stock had returns of 11 percent, -18 percent, -21 percent, 5 percent, and 34 percent over the past five years. What is the standard deviation of these returns? A.
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This note was uploaded on 07/01/2010 for the course ECON 393 taught by Professor D during the Spring '10 term at Rutgers.

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Practice+question+Midterm - Midterm Exam Form A Financial...

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