FI515 Quiz 1 - 1 Question One way to increase EVA is to...

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1 Question: One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital. If a firm reports positive net income, its EVA must also be positive One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital. Actions that increase reported net income will always increase net cash flow. 2 Question: a. If a bond''s yield to maturitiy exceeds its annual coupon, then the bond will be trading at a premium. b. If interest rates increase, the reletive b. price change of a 10-year coupon bond will be greater than the relative price change of a 10-year zero coupon bond. c. If a coupon bond is selling at par, its current yield equal its yield to maturity d. Both a and c are correct e. None of the answers above is correct. Explanation: Statement c is correct; the other statements are false. If a bond’s YTM > annual coupon, then it will trade at a discount. If interest rates increase, the 10-year zero coupon bond’s price change is greater than the 10-year coupon bond’s. 3 Question: a. An investment which conmpounds interest semiannually, and has a nominal rate of 10 percent will have an effective rate less than 10 percent.
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