Answer all questions in this section. Answer True or False to each of the next five statements.

Markets for short-term debt securities are called capital markets, while markets for long-term debt and equity are called money markets.

New York Stock exchange is an example of a primary market while the IPO is a secondary market transaction.

Positive operating free cash flows are equal to the cash flows distributed to the firms investors (both debt and equity).

Free Cash Flow (FCF) may be defined as net operating profit after taxes (NOPAT) minus the amount of net investment in operating working capital and fixed assets necessary to sustain the business.

While an income statement measures a companys profits, profits are not the same as cash flows; profits are calculated on a cash basis rather than an accrual basis.

Choose the letter a, b, c, or d that carries the best response.

Given the following end-of-year cash flows, what is the present value of the second cash flow if the discount rate is 6 percent? A. $471.70 B. $667.50 C. $707.55 D. $750.00

You have $950 in your account today. How much will you have 5 years from now if the account earns 8 percent compounded annually? A. $1,341.05 B. $1,347.82 C. $1,395.86 D. $1,406.23

___________ is an annuity that provides its holder with payment dollars at the beginning of each year.

Year	Cash Flow
1	$500
2	$750
3	$1,000

An annuity dueB. A warrantC. A perpetuityD. An ordinary annuity

new employer. They offer you a signing bonus of $2,000 to be accepted now or a lump sum payment of $2,500 at the end of three years. You can earn 7 percent on your investments. You should:

take the signing bonus because it has the lower present value.

take the signing bonus because it has the higher future value.

take the lump sum because it has the higher present value.

take the lump sum because it has the lower future value.

Suppose that we would like to discount (to the present) a cash flow that will be received t years in the future. What would be the appropriate discount factor by which we should multiply the cash flow? A. (1+yt)t B. 1/ytC. 1/(1+yt) D. 1/(1+yt)t

The First National Bank offers one-year certificates of deposit with a stated rate of 5.50 percent compounded quarterly. Which one of the following rates, compounded semi-annually, comes closest to providing you with the same amount of interest?

5.487 percent

5.500 percent

5.512 percent

5.538 percent

J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 7 percent. If the bond has a life of 30 years, pays annual coupons, and the yield to maturity is 6.8 percent, what is the present value of the bond's face value? A. $138.95 B. $241.15 C. $886.37 D. $1,000.00

What is the effective annual rate on an investment that pays 19.75% annually and is compounded 12 times per year?

A. 20.72% B. 20.96% C. 21.26% D. 21.64%

14. For a bond selling at par, the yield to maturity must be:

greater than the coupon rate.

less than the coupon rate.

greater than the required rate of return.

equal to the current yield.

15. A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is currently selling at par ($1,000). Which of the following statements is most correct?

The bonds yield to maturity is 9 percent.

The bonds current yield is 9 percent.

If the bonds yield to maturity remains constant, the bonds price will remain at par.

Statements A and C are correct.