1. Three of the disadvantages of a sole proprietorship, (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership, result in another significant disadvantage, difficulty in attracting large amounts of capital._______

True

False

2. Holding the stated nominal rate constant, the future value of cash flow will be larger if we compound the cash flow more frequently.______

True

False

3. We expect that Federal Reserve Bank will increase interest rate, so it is a good opportunity for investors to invest in the bond market because bond price may increase. ______

True.

False.

4. What's the value of a preferred stock if we assume it has an annual dividend $5 per share and the required rate of return is 20%? ______

$ 5

$ 10

$ 25

$ 100

5. How to compute the real risk-free rate? ______

Equal to nominal risk-free rate

Equal to nominal risk-free rate plus the expected inflation rate

Equal to nominal risk-free rate minus the expected inflation rate

6. Which one of the following has the highest effective annual rate?

12% compounded annually

10% compounded monthly

8% compounded weekly

7% compounded daily

7. A firm has $900 millions of current assets, including $300 millions of inventory. It has $500 millions of current liabilities. What's the firm's quick ratio?

0.60

1.80

1.40

1.20

8. For a discount bond, the coupon interest rate should be greater than its yield to maturity. ______

True

False

9. If we assume a perpetuity pays $100 per year forever. What would the perpetuity be worth if the required rate of return is 10%? ______

$100

$500

$1,000

$2,000

10. Under straight voting, each share of stock allows the shareholder one vote, and each position on the board of directors is voted on separately. But with cumulative voting, each share of stock allows the stockholder a number of votes equal to the number of directors being selected. So cumulative voting procedure helps protect minority shareholders. _____

True

False

11. You just inherited $10,000. You are investing this money for two years at 10% simple interest. In whole dollars, how much money will you have at the end of the two years?

$10,500

$11,000

$12,025

$12,000