17

1. Which of the following statements is CORRECT?

   If a loan or investment that has a nominal interest rate of 6.89% with quarterly payments will have an effective rate that is smaller than 6.89%.

   An investment that has a nominal rate of 5.5% with monthly payments will have an effective rate that is equal to 5.5%.

   If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.

   If a loan or investment has a nominal annual interest rate of 7.65%, then the effective rate will never be less than 7.65%.

Money markets are markets for

A 90-day Certificate of Deposit at a commercial bank.

A 30-day Treasury security.

A money market mutual funds.

Short-term debt securities.

All of the above

The days sales outstanding tells us how long it takes, on average, to collect after a sale is made. The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time.

True

False

A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio.

True

False

The total rate of return earned on a stock is comprised of dividend yield and yield to maturity.

True

False

Which of the following is a primary market transaction?

You sell 200 shares of TJMaxx stock on the NYSE through your broker.

You buy 200 shares of TJMaxx stock from your brother. The trade is not made through a broker--you just give him cash and he gives you the stock.

TJMaxx issues 2,000,000 shares of new stock and sells them to the public through an investment banker.

One financial institution buys 200,000 shares of TJMaxx stock from another institution. An investment banker arranges the transaction.

As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan).

True

False

Which of the following statements is CORRECT?

Corporations face fewer regulations than proprietorships.

One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level.

It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.

If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.