FIN 315 CH6

FIN 315 CH6 - 1. Which of the following is NOT one of the...

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1. Which of the following is NOT one of the four fundamental factors influencing the cost of money? a. Production opportunities b. The number of publicly traded companies c. Time preferences for consumption d. Risk e. Inflation -------------------------------------------------------------------------------- 2. What is the price paid to borrow debt capital called? a. Interest rate b. Dividendc. Capital gains c. Capital gains -------------------------------------------------------------------------------- 3. In equilibrium, all borrowers should expect to pay the same interest rate. True or False? True False -------------------------------------------------------------------------------- 4. If inflation during the last 12 months was 3% and the interest rate during that period was 5%, what was the real rate of interest? a. 1% b. 2% c. 3% d. 4% e. 5%
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-------------------------------------------------------------------------------- 5. The interest rate on a T-bond includes a default risk premium, a liquidity premium, and a maturity risk premium. True or False? True False -------------------------------------------------------------------------------- 6. Assume that the real risk-free rate is r* = 2.5% and the average expected inflation rate is 3% for each future year. The DRP and LP for Bond X are 1% each, and the applicable MRP is 1.5%. What is Bond X's interest rate? a. 4.5% b. 6.0% c. 7.5% d. 9.0% e. 10.5% -------------------------------------------------------------------------------- 7. Because expected inflation has always been anticipated to increase, there has never
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FIN 315 CH6 - 1. Which of the following is NOT one of the...

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