Finance Questions

The average accounting return method of analyzing projects:A. Incorporates cash flows.B. Is similar to calculating the Return on Assets.C. Is difficult to estimate using information from accounting statements.D. Should accept all projects with positive AAR

Which of the following statements is FALSE?A. When market yields rise, the price of discount bonds fall further below par or face value.B. When market yields rise, the price of long-term bonds fall by a greater percent than short-term bonds.C. When market yields rise, the price of bonds with small coupons fall by a greater percent than those with large coupons.D. When market yields rise, investors redeem or 'call' the callable bonds they own, forcing the issuer of the bond to pay at least the face value

Fill in the blanks: Stock prices fall if investors either expect _________ growth rates or require _________ returns.A. higher, higherB. higher, lowerC. lower, higherD. lower, lower

Which of the following statements is FALSE?A. The future value of a single cash flow grows across a longer time periodB. The present value of a single cash flow falls with a higher interest rateC. The present value of an annuity grows if the annuity lasts longerD. The future value of an annuity falls with a higher interest rate

Other things equal, investors will require higher yields on, and be willing to pay lower prices for, bonds with the following characteristics, except those which:A. Are unsecuredB. Have less protective covenantsC. Have lower credit qualityD. Are convertible into common shares

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?A. Interest rate risk premiumB. Taxability premiumC. Default risk premiumD. Liquidity premium

Fill in the blanks: An annuity is worth _______ than a perpetuity, and a constant annuity is worth _______ than a growing annuity. (assuming the normal circumstance where the discount rate exceeds the growth rate and where the growth is positive)A. more, moreB. more, lessC. less, moreD. less, less

Which of the following statements is FALSE?A. The Gordon Growth Model assumes constant dividend growth and implies that stock prices grow at the same rate.B. A stock's price is the present value of the expected dividends and capital gains.C. Dealers buy and sell securities from their own inventory, while brokers bring buyers and sellers together to complete transactions.D. Holders of preferred stock have greater voting rights in corporate decisions than holders of common stock.

Which of the following statements is TRUE?A. The coupon rate on a previously issued bond represents the rate of return required by today's participants in the market place.B. When a bond's yield to maturity is less than its coupon rate, the bond is selling at a discount.C. The market prices of bonds with higher coupons are more sensitive to changes in market interest rates.D. The market prices of bonds with longer maturities are more sensitive to changes in market interest rates.

Which of the following statements is FALSE?A. The APR should not be used to compare two investments with different compounding periods.B. Lenders prefer less frequent compounding.C. Treasury Bills are pure discount loans with no coupon payments.D. Typical bullet bonds are interest-only loans where the principal is not amortized.

Which of the following choices is NOT a CORRECT way to complete this sentence: Other things equal, a set of cash flows is more valuable ...A. The longer they lastB. The more frequently they are paidC. The faster they growD. The larger the time value that investors require compensation for trading a dollar today for dollars tomorrow

Which one of the following has the highest effective annual rate?A. 6 percent compounded annuallyB. 6 percent compounded semi-annuallyC. 6 percent compounded quarterlyD. 6 percent compounded monthly

Which of the following statements is TRUE?A. The APR is equal to the EAR for a loan that charges interest monthly.B. The APR is always strictly greater than the EAR for compounding more than once per year.C. The APR on a monthly loan is equal to (1 + monthly interest rate)12 - 1.D. The EAR is the best measure of the actual rate you are paying on a loan.

Which of the following statements is FALSE?A. With simple interest, the interest is not reinvested, so interest is earned each period only on the original principal.B. Both lenders and investors prefer more compounding.C. Amortizing a loan allows for a portion of principal to be paid with the interest each period principal so that the actual payments to interest will increase with each payment.D. Treasury Bills are pure discount loans sold by the US government that repay a fixed amount as one lump sum at some time in the future.

Lisa has $1,000 in cash today. Which one of the following investment options will come closest to doubling her money?A. 12 percent interest for 5 yearsB. 7 percent interest for 9 yearsC. 8 percent interest for 9 yearsD. 6 percent interest for 10 years

Which of the following statements is FALSE?A. Financial ratios help compare over time companies of different sizes and industries, and since not all sources calculate them the same way, managers should understand how they are derived.B. Asset utilization ratios describe how efficiently, or intensively, a firm uses its assets to generate sales.C. To a firm's creditors, particularly short-term creditors such as suppliers, the higher the current ratio is, the better.D. Higher margin, turnover, leverage, and dividends all generally allow a firm to grow faster over the long run.

Which of the following statements is FALSE?A. The book value of equity rarely equals the market value of equity except when the market-to-book ratio is 1.0.B. The book value of equity is the residual difference between assets and liabilities.C. The book value of equity increases when a company pays dividends.D. The ultimate goal of financial managers is to maximize the current market value of the company's existing equity

New Century Products is a company that was founded last year. While the outlook for the company is positive, it currently has negative earnings. If you wanted to measure the progress of this firm, which one of the following ratios would probably be best to monitor given the firm's current situation?A. Price-sales ratioB. Market-to-book ratioC. Profit marginD. ROE

Suppose Miller Inc. is able somehow to reduce its fixed assets without affecting the company's operations, sales, net income, or equity. This reduction will decrease which of the following ratios?A. Capital intensity ratioB. Return on assetsC. Total asset turnoverD. Return on equity

Which one of the following statements is true concerning the price-earnings (PE) ratio?A. A high PE ratio typically indicates that a firm is expected to grow significantly.B. A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.C. PE ratios are unaffected by the accounting methods employed by a firm.D. The PE ratio is classified as a profitability ratio.