11.) The phrase "price to rent money" is sometimes used to refer to ________.

A) historical prices

B) compound rates

C) discount rates

D) interest rates

12.) Amalgamated Appliance Inc. has planned a 3-month issue of commercial paper with a face value of $25,000,000. The paper is set to sell at 98.5% of face value. What is the discounted selling price of the firm's commercial paper?

A) $25,000,000

B) $25,325,000

C) $24,625,000

D) $24,300,000

13.) Which of the statements below is TRUE?

A) A problem with using the dividend growth model is that it appears to underestimate the expected return for all stocks.

B) A problem with using the dividend growth model is that it produces a negative expected return whenever a firm cuts dividends.

C) A problem with using the dividend growth model is that it produces a positive expected return whenever a firm cuts dividends.

D) A problem with using the dividend growth model is that it produces a negative expected return whenever a firm increases its dividends.

14.) Which of the following can lead to increased expected cash flow over time to the firm?

A) Open and collaborative relations with the community

B) Qualified and motivated employees

C) Greater customer satisfaction

D) All of the above

15.) In finance, we separate operating decisions from financing decisions and thus exclude ________ as a part of operating income from the income statement.

A) cash flow

B) dividends

C) interest expense

D) earnings

16.) Which of the following identities is FALSE?

A) Cash Flow to Creditors = Interest Expense - Net New Borrowing from Creditors

B) Net New Borrowing = Ending Long-term Liabilities - Beginning Long-Term Liabilities

C) Cash Flow to Owners = Dividends + Net New Borrowing from Owners

D) Net New Borrowing from Owners = Change in Equity

17.) You estimate that the little drive-through coffee kiosk you own will generate ordinary annuity after-tax cash flows of $150,000 per year for the next ten years. If you discount these cash flows at an annual rate of 14%, what is the present value of your expected cash flows?

A) $782,417.35

B) $891,955.78

C) $1,500,000.00

D) $2,900,594.27

18.) The two major components of the interest rate that cause rates to vary across different investment opportunities or loans are ________.

A) the default premium and the bankruptcy premium

B) the liquidity premium and the maturity premium

C) the default premium and the maturity premium

D) the inflation premium and the maturity premium

19.) Which of the statements below is FALSE?

A) If you invest money for a short period and buy a six-month CD, you will not receive as high an interest rate as if you bought a CD with a longer maturity period.

B) The difference in rates as the borrowing time or investment horizon increases is due to the maturity premium of the investments.

C) The maturity premium represents that portion of the yield that compensates the investor for the additional waiting time or the lender for the additional time it takes to receive repayment in full.

D) The longer the loan, the greater the risk of nonpayment and the lower the interest rate the lender demands.

20.) Which of the following statements about the relationship between yield to maturity and bond prices is FALSE?

A) When the yield to maturity and coupon rate are the same, the bond is called a par value bond.

B) A bond selling at a premium means that the coupon rate is greater than the yield to maturity.

C) When interest rates go up, bond prices go up.

D) A bond selling at a discount means that the coupon rate is less than the yield to maturity.

21.) Which of the statements below is FALSE?

A) The payment of cash dividends to shareholders is a deductible expense for the company.

B) Unlike coupon payments on bonds, which are treated as an interest expense of the firm, common stock dividends are considered a return of capital to shareholders and not an expense of the firm.

C) For the shareholder, receipt of dividends is a taxable event.

D) A typical practice of many companies is to distribute part of the earnings to shareholders through cash dividends.

22.) ________ means that the percentage increase in the dividend is the same each year.

A) Constant growth

B) Inconsistent growth

C) No growth

D) A constant cash flow

23.) Diversification is:

A) not putting all of your eggs in one basket.

B) spreading wealth over a variety of investment opportunities.

C) a common investment strategy.

D) All of the above

24.) Which of the following is NOT a form of perpetuity?

A) A British consol bond

B) Preferred stock that pays the same dividend forever

C) A philanthropic endowment fund that pays the same charitable amount every year forever

D) All are examples of perpetuities.

25.) An investor's total investment set may be referred to as ________.

A) the stock market

B) diversification

C) a financial portfolio

D) None of the above

26.) You put 20% down on a home with a purchase price of $150,000, or $30,000. The remaining balance will be $120,000. A bank will loan you this remaining balance at 4.375% APR. You will make monthly payments with a 20-year payment schedule. What is the monthly annuity payment under this schedule?

A) $751.11

B) $830.53

C) $910.12

D) $5,250.18

27.) Which of the following statements is TRUE?

A) The dealers of stock are not allowed to make money on the difference between what they buy the stock for and what they sell it for.

B) A bear market is a prolonged rising market, one in which stock prices in general are increasing.

C) The ask price is the price at which a dealer is willing to sell, and the bid price is the price at which a dealer is willing to buy.

D) A bull market is a prolonged declining market, one in which stock prices in general are decreasing.

28.) The means by which a company is financed refers to the firm's ________.

A) capital budgeting

B) capital structure

C) accounts receivable management

D) working capital management

29.) The ________ is a market derived interest rate used to discount the future cash flows of the bond.

A) coupon rate

B) semiannual coupon rate

C) yield to maturity

D) compound rate

30.) Which of the statements below is TRUE?

A) Investors want to maximize return and maximize risk.

B) Investors want to maximize return and minimize risk.

C) Investors want to minimize return and maximize risk.

D) Investors want to minimize return and minimize risk.

31.) It is important to remember that the fundamental identity of accounting is the debit and credit recording activity where debits ________ equal credits.

A) never

B) seldom

C) sometimes

D) always