Question 31

You need to convert $10,000 to Mexican pesos and the current exchange rate is 13.684 pesos/$ . Based on this, you will have 136,840 pesos after the exchange.

True

False

Question 32

All else equal, which of the three values will typically be the highest for common stock?

Par Value

Market Value

Book Value

All three are equally likely to have the highest value

Question 33

If we use use our current profits (income that is not paid out in dividends) to finance our projects, this is _____.

Preferred stock financing

Debt financing

A proportional mix of common stock, preferred stock, and debt financing

Common stock financing

Question 34

All else equal, increasing the discount rate will always lower the present value of a positive cash flow stream

True

False

Question 35

Today, General Motors announced a drop in demand for their products and warned investors that cash flows would likely be lower than previously expected going forward. This was a surprise announcement and was not anticipated by investors. Assuming markets are efficient, we should expect

The stock price to drop immediately and then go up or down over the next several months based on new announcements. In other words, after the immediate drop, all further increases/decreases will be based on new information and not be a response to today's announcement.

The stock price should increase because investors will now demand a higher rate of return.

The stock price should not respond because stock prices are fairly valued at all times.

The stock price to drop immediately and then continue to decline over the next several months due to the drop in cash flows.

Question 36

Sole Proprietorships expose their owners to unlimited liability while corporations offer their owners limited liability.

True

False

Question 37

A load charge refers to an upfront sales charge (not to exceed 8.5%) that is taken out of investors contribution before it is put into the fund. For example, if I make an investment of $10,000 into a mutual fund with a 3% load charge, $9700 actually gets invested into the fund.

True

False

Question 38

Everything else being equal, a bond with a call provision will likely have a higher yield than a bond without a call provision.

True

False

Question 39

Choose the correct statement regarding currency risk and international investing

All else equal, currency fluctuations will have no impact on US investors holding significant amounts of foreign securities

All else equal, a weaker US dollar is likely to benefit US investors holding significant amounts of foreign securities

All else equal, a stronger US dollar is likely to benefit US investors holding significant amounts of foreign securities

Question 40

All else equal, which would we expect to lead to an increase in the after-tax cost of debt? This is a multiple answer format question. Check all that apply.

An increase in the riskiness of our debt

An increase in the corporate tax rate

A decrease in the corporate tax rate