Practice problems for exam 3 (Chapter 10
Techniques and Practice)
1. The internal rate of return is the discount rate that equates the present value of the
project's future free cash flows with the project's initial outlay.
Chapter 11Managing Health Expenses
1. A group health care plan is sold collectively to an entire group of persons rather than individuals.
REF: p. 321
2. Less than 50 percent of Americans are covered by some type of priv
Chapter 18Estate Planning
1. The wealth you accumulate over your lifetime less any debts you owe is your estate.
REF: p. 548
2. Only the wealthy have an estate.
everyone has an estate although most are modest.
Chapter 17Retirement Planning
1. Retirement is defined as the time period when you stop all work for pay.
many retirees continue to work part-time.
REF: p. 512
2. Retirement is the time in life when the major sources
Chapter 13Investment Fundamentals
1. A portfolio is a collection of investments assembled to meet your investment goals.
REF: p. 380
2. Bonds are shares of ownership in a corporation.
bonds represent loans to an e
Chapter 14b (MC)Investing in Stocks and Bonds
183. The type of business ownership that has the potential to raise large amounts of capital through the sale
of stock is called
a. a partnership.
b. a corporation.
c. a sole proprietorship.
Chapter 14a (TF)Investing in Stocks and Bonds
1. A corporation is a state-chartered legal entity that can conduct business operations in its own name.
REF: p. 411
2. Shares of a privately-held corporation can only be
Chapter 15Investing Through Mutual Funds
1. A mutual fund is an investment company that pools funds obtained by selling shares to investors and
makes investments to achieve financial goals.
REF: p. 458
2. A mutual fund i
Chapter 16Real Estate and High-Risk Investments
1. A real estate bubble is rapid and unsustainable increases in home prices followed by sharp declines in
REF: p. 484
2. Speculative investments have the potent
The additional compensation for assuming greater risk is called (Select the best choice below.)
int. nominal average return.
[:3 El. standard deviation of return.
cfw_JV [3, risk premium.
-:j_j:-D_ real average return.
Stock W has an expected return of
(Bond valuation) Sunn Co.'s bonds, maturing in 16 years, pay 13 percent interest on a $1,000 face vahJe. However, interest is paid semiaimually. Ifyour required rate ofretum is 9 percent, what is the value ofthe bond? How would your answer change if
(Preferred stock valuation) Pioneer preferred stock is selling for $22.75 per share in the market and pays a $2.50 annual dividend
What is the expected rate ofretum on the stock?
Han investors required rate ofreturn is 9 percent, what is the Value ofthe s
(Ination and interest rates) Assume the expected ination rate to be 4.3 percent. If the current real rate of interest is 6.1 percent, what ought the nominal rate of interest be?
The nominal rate of interest is 10.65%. (Round to two decimal places.)
Practice problems for exam 3 (Chapter 9
The Cost of Capital )
1. In order to create value a corporation must earn a rate of return on its
invested capital that is higher than the market's required rate of return
on that invested capital.
Sample questions for exam I
The questions are similar to, but not the same as, the questions you will see in your exam. The
purpose of giving you these questions is to provide you with more practice in addition to your
homework so that you will do well in
Chapter 12Life Insurance Planning
1. Life insurance is insurance that protects against financial losses resulting from death.
REF: p. 346
2. The purpose of life insurance is to protect the person on whose life an insuran