Test 1 TF - Finance 3332 Test 1 True/False Questions 1 The...

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Unformatted text preview: Finance 3332 Test 1 True/False Questions 1. The value of PVIFA 0.14, 25 is 6.8729. 2. The Euro refers to the deposit of foreign currency in a bank of a European country. 3. The greater the risk of receiving future cash flows, the lower will be the present value of those cash flows. 4. If an investor purchases a mutual fund, she is using a financial intermediary. 5. U.S. financial markets are said to be highly efficient, meaning that the market provides quick access to firms’ financial statements. 6. In the over the counter market, the firm receives the proceeds from the sale of its securities. 7. Assets can be valued by estimating the magnitude of the cash flows, timing of the cash flows, and risk of the cash flows that the asset is expected to generate. 8. Keith is interested in maximizing his wealth, and he has a choice of three cash payouts: 1) $511 today, 2) $115 per year for five years, or 3) $609 to be received in four years. If Keith’s opportunity cost is 8 percent, he will prefer cash flow 2) $115 per year for five years. 9. A potential agency conflict can arise between stockholders and bondholders because owners can increase the risk of a firm’s investments. 10. The appropriate goal of the financial manager is to maximize the firm’s profits. 11. Agency relationships can explain why a closely held firm is more likely to be a wealth maximizer than a corporation with wide ownership. 12. A major advantage in the corporate form of organization over sole proprietorships and over partnerships is the reduction in taxes. 13. The goal of shareholder wealth maximization is accomplished by maximizing the net present value of the firm and can be measured by the market price of the firm’s common stock. 14. Money markets are financial markets in which foreign and domestic currencies are exchanged. 15. Brokers, dealers, and investment bankers are examples of financial middlemen. Spring 2011 1 [Type text] [Type text] [Type text] 16. The forward exchange rate is the rate at which one currency can be converted into another currency at a specified future date. 17. U.S. financial markets are said to be highly efficient, meaning that accurate stock quotes are quickly available to all investors. 18. The value of FVIFA 0.14, 25 is 181.8708. 19. Keith is interested in maximizing his wealth, and he has a choice of three cash payouts: 1) $511 today, 2) $115 per year for five years, or 3) $609 to be received in four years. If Keith’s opportunity cost is 8 percent, he will prefer cash flow 3) $609 to be received in four years. 20. As interest rates increase, the present value of a given future value will decrease. 21. The greater the risk of receiving future cash flows, the higher will be the present value of those cash flows....
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Test 1 TF - Finance 3332 Test 1 True/False Questions 1 The...

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