Question 1

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Select the pairing that is correctly matched.

• Common stock: the issuer must honor any missed dividend payments
• Common stock:the value of the stock is dependant upon the overall value of the company
• Preferred stock: stockholder receives interest from the issuer
• Preferred stock: cannot be converted for common stock shares

Question 2

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Which of the following accurately describes a flat yield curve?

• A curve that slopes downward as maturities lengthen and that indicates confidence that economic activity will grow in the future.
• A curve with a minimal spread between short-term and long-term maturities and that indicates concern or doubt about the strength of the economy.
• A curve that rises sharply and then levels off as maturities lengthen and that indicates a transition between a period of economic stagnation to one of growth.
• A curve that slopes upward as maturities lengthen and that indicates fear that the economy is about to enter a recession.

Question 3

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Which of the following is true for calculating the present value of multiple cash flows?

• All of the cash flows must be discounted to the same point in time.
• It is more complex to find the PV of annuities than the PV of irregular cash flows.
• You can only find the PV of multiple cash flows if they originate at the same time.
• The PV of multiple cash flows is the sum of the FV of each individual cash flow divided by the interest rate.

Question 4

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Which of the following is an advantage of bonds for a potential investor?

• They typically generate higher returns than stocks.
• All bonds have the same interest rate, so they are predictable.
• The diversity of bond types means they respond easily to market needs.
• Companies can choose to pay off bonds early.

Question 5

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You deposit $7,000 in a bank account that earns 2% compound interest annually.

What is the value of your $7,000 in four years?

• $7,560
• $7,577
• $6,440
• $6,423

Question 6

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Determine the value of a stock with the following variables using the constant growth model:

• Current annual dividend: $2.75 per share
• Required return rate: 8.5%
• Constant growth rate: 6%
• $116.60
• $119.35
• $110.00
• $114.70

Question 7

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A corporation that makes shares of stock available for the public to purchase is an example of an __________.

• investment trust
• investor
• intermediary
• issuer

Question 8

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Select the statement that correctly explains the relationship between interest rates and present or future value.

• The interest rate and the future value of an investment are inversely related.
• Assuming other variables stay the same, if the interest rate decreases, the future value of an investment increases.
• Assuming other variables stay the same, if the interest rate decreases, the present value of an investment decreases.
• Assuming other variables stay the same, if the interest rate increases, the future value of an investment increases.

Question 9

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In calculating the yield of an investment, what is EAR equivalent to?

• APY
• IRR
• NPV
• APR

Question 10

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You would like to have $8,000 in an account after four years' time.

If the account earns 4% compounded interest yearly, how much would you have to deposit today?

• $7,692
• $6,838
• $7,249
• $6,897