Ch13 - Ch13 Student 1 A small business is receiving a...

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Ch13 Student: ___________________________________________________________________________ 1. A small business is receiving a five-year $1,000,000 loan at a subsidized rate of 3% per year. The firm will pay 3% annual interest payment each year and the principal at the end of five years. If market interest rate on similar loans is 6% per year, what is the NPV of the loan? (Ignore taxes.) A. +$127,371 B. +$348,369 C. -$501,595 D. None of the above 2. A large firm is receiving a loan guarantee from the government. Because of the guarantee, the firm is able to borrow $50 million for five years at 8% interest rate per year instead of 10% per year. Calculate the value of the guarantee to the firm. (Ignore taxes.) A. +$53.79 million B. +$3.79 million C. -$3.79 million D. None of the above 3. If the capital markets are efficient, then the sale or purchase of any security at the prevailing market price is: A. Always a positive NPV transaction B. Generally a zero NPV transaction C. Is always a negative NPV transaction D. None of the above 4. Financing decisions differ from investment decisions for which of the following reasons? I) You cannot use NPV to evaluate financing decisions II) The market for financial assets is more active III) It is easier to find financing decisions with positive NPV than to find investment decisions with positive NPV A. I only B. II only C. III only D. I and III only 5. Financing decisions differ from investment decisions because: I) it is easy to reverse a financing decision II) the market for financial assets is very competitive III) generally, financing decisions have zero NPV A. I only B. I and II only C. I, II, and III D. II and III only
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6. Generally, a firm is able to find positive NPV opportunities with: I) Financing decisions II) Capital investment decisions III) Short-term borrowing decisions A. I only B. I and III only C. III only D. II only 7. The statement that stock prices follow a random walk implies that: I) Successive price changes are independent of each other II) Successive price changes are positively related III) Successive price changes are negatively related IV) The autocorrelation coefficient is either +1 or -1 A. I only B. II and III only C. IV only D. III only 8. A random walk process consists of the toss of a fair coin at the end of each day. If the outcome is heads stock price increases by 1.25% and if the outcome is tails the stock price decreases by 0.75%. What is the drift of such a process? A. +1.25% B. -0.75% C. +0.25% D. None of the above 9. The statement that stock prices follow a random walk implies that: I) The correlation coefficient between successive price changes (auto correlation) is not significantly different from zero. II) Successive price changes are positively related.
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Ch13 - Ch13 Student 1 A small business is receiving a...

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