1.a. Explain the term Depreciation is a NON cash expense and how do companys use it.

1.b. List a few advantages and disadvantages for opening up a company as a corporation.

T/F Financial markets connect production needs for money with consumptions available savings.

T/F Money markets deal in short-term debt.

T/F Sunk costs have already been spent and are ignored.

T/F Retained earnings are not a source of capital.

T/F The FED usually lowers interest rates if there is a fear of inflation.

1. a. Explain why the cost of debt is lower than the cost of capital?

1. b. Explain what is meant by the statement- depreciation is a non-cash expense and how do companies use it.

1. c. How long does it take money earning 12% to double? Use both the rule of 72 and your financial calculator.

1. d. Explain the three ways a company can raise capital.

1. e. If an investor has a short term view on her investments and in a time of high interest rates - which is better stocks or bonds? Why?

1. f. Explain the difference between common and preferred stock.

1. g. If you own 3 stocks A, B, and C. What is your total return of your portfolio?

Stock $ invested Return

A $ 6,000 6 %

B 9,000 9 %

C 15,000 11 %

1. h. Explain the RISK/ REWARD theory?

1. i. GM issued a $ 1,000, 30-year bond 5 years ago at 9 % interest. Comparable bonds yield 6 % today. What should GM bond sell for now?