Answer Key
Closed Book.
1. Assuming a financial manager was doing their job, and after selecting the optimal capital budget, minimizing WACC is
equivalent to maximizing shareholders wealth.
a. True
b. False
2. Explain why your answer to the previous quest
1. Interest rates that include an inflation premium are referred to as:
a. Nominal rates
2. For bonds, price sensitivity to a given change in interest rates is generally greater the longer
before the bond matures.
a. true
3. Other things equal, a firm wil
1. Which one of the following is included in a firm's market value but yet
is excluded from the firm's accounting value?
a. Good reputation of the company
2. Which of the following are all components of the statement of cash
flows?
a. Cash flow from opera
Chapter 5
1. The written, legally binding agreement between the corporate borrower and the lender
detailing the terms of a bond issue is called the:
a. indenture.
b. covenant.
c. terms of trade.
d. form 5140.
e. call provision.
Answer: a
Difficulty level:
bondsconcept
Question1
8/8points
A bond's coupon rate is equal to the annual interest divided by which one of the
following?
dirtyprice
currentprice
cleanprice
facevalue
callprice
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face,par,principal,futurevalue,$1000intheU.S.
Question2
8/8poi
Selected practice questions from Chapters 6 8, FIN 335, with Dr.
Graham
From Chapter 6 Bonds and Bond Value
1. The stated interest payment, in dollars, made on a bond each period is called the bond's:
A) Coupon.
B) Face value.
C) Maturity.
D) Yield to mat
Score:
1.
40/40
Points
100
%
Award: 2 out of 2.00 points
A business created as a distinct legal entity and treated as a legal "person" is called a:
"
corporation.
#
sole proprietorship.
#
general partnership.
#
limited partnership.
#
unlimited liability c
Score:
1.
22.50/60
Points
37.50
%
Award: 5 out of 5.00 points
A Japanese company has a bond outstanding that sells for 88 percent of its 100,000 par value. The bond
has a coupon rate of 4.70 percent paid annually and matures in 18 years.
What is the yield
Score:
1.
40/40
Points
100
%
Award: 2 out of 2.00 points
SDJ, Inc., has net working capital of $2,710, current liabilities of $3,950, and inventory of $3,420.
What is the current ratio? (Round your answer to 2 decimal places. (e.g., 32.16)
Current ratio
1
Score:
1.
37.90/40
Points
94.75
%
Award: 2.10 out of 2.10 points
The most recent financial statements for Dockett, Inc., are shown here (assuming no income taxes):
Income Statement
Sales
$ 7,100
Costs
4,370
Net income
Assets
$ 2,730
Total
Balance Sheet
$2
1. In historical data, we see that investments with the highest average annual
returns also tend to have the highest standard deviations of annual returns.
This observation supports the notion that there is a positive correlation
between risk and return.
Score:
1.
38/40
Points
95
%
Award: 4 out of 4.00 points
Year
0
1
2
3
4
Cash
Flow
$ 5,500
1,300
1,500
1,900
1,400
What is the payback period for the set of cash flows given above? (Round your answer to 2 decimal
places. (e.g., 32.16)
Payback period
3.57
ye
Score:
1.
40/40
Points
100
%
Award: 1.60 out of 1.60 points
Wainright Co. has identified an investment project with the following cash flows.
Year
1
2
3
4
Cash Flow
$ 720
930
1,190
1,275
If the discount rate is 10 percent, what is the present value of the
Score:
1.
39.96/39.96
Points
100
%
Award: 3.33 out of 3.33 points
The JacksonTimberlake Wardrobe Co. just paid a dividend of $1.45 per share on its stock. The dividends
are expected to grow at a constant rate of 6 percent per year indefinitely. Investors
Score:
40/40
Points
100
%
1.
Award: 2 out of 2.00 points
Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the
coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the requi
1. Which of the following statements is most correct?
a. Partnerships have difficulty attracting capital in part because of the
other disadvantages of the partnership form of business, including
impermanence of the organization.
2. Which of the following
CHAPTER 4
BONDS ANND THEIR VALUATION
Bond value-semiannual payment
1.
You intend to purchase a 10-year, $1,000 face value bond that pays
interest of $60 every 6 months. If your nominal annual required rate of
return is 10 percent with semiannual compoundi
Finance 3155 - Business Finance
November 11, 1999 - Exam 3
Dr. Dowling
Instructions:
Name_
You are to circle the letter representing the correct answer. If
calculations are required to arrive at the answer, you must provide
sufficient documentation for yo
ANSWER AND SOLUTION TO MID-SEMESTER 2004
1
.
You have determined the profitability of a planned project by
finding the present value of all the cash flows from that
project.
Which of the following would cause the project to
look more appealing in terms of
Name: _ Class: _ Date: _
ID: A
Sample Questions for Mini-Test 3
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
_
1. A Treasury bond has an 8 percent annual coupon and a yield to maturity equal
BONDS AND THEIR VALUATION
(Difficulty: E = Easy, M = Medium, and T = Tough)
Multiple Choice: Conceptual
Easy:
Interest rates
1
.
longer; smaller.
shorter; larger.
longer; greater.
shorter; smaller.
Statements c and d are correct.
Interest rates and bond p
1. The degree to which the managers of a firm attempt to magnify the
returns to owners' capital through the use of financial leverage is
captured in debt management ratios.
a. True
2. List at least 5 limitations of ratio analysis as given in the text.
a.
1. The interest rate that is quoted by a lender is referred to as which one
of the following?
a. stated interest rate, also known as the nominal rate, quoted rate,
annual percentage rate, discount rate, compound rate, interest
rate, yield to maturity, req
Question1
5/5points
Interest earned on both the initial principal and the interest reinvested from prior periods
is called:
dualinterest.
simpleinterest.
interest on interest.
compound interest.
freeinterest.
HideFeedback
interestoninterestiscompoundinter