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Week 1 Practice Quiz

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375597 Week 1 Practice Q

Part 1 of 1 - 12.0/ 15.0 Points

Question 1 of 15
1.0/ 1.0 Points
As a legal entity a corporation can perform the following functions except: I) borrow money; II) lend
money; III) sue and be sued; IV) vote

A.I and II only


B.I, II, and III only


C.IV only


D.I, II, III and IV


Answer Key: C

Question 2 of 15
1.0/ 1.0 Points
A firm's investment decision is also called the:

A.Financing decision


B.Liquidity decision


C.Capital budgeting decision


D.None of the above


Answer Key: C

Question 3 of 15
1.0/ 1.0 Points
The following are important functions of financial markets: I) Source of financing; II) Provide liquidity; III)
Reduce risk; IV) Source of information

A.I only


B.I and II only


C.I, II, III, and IV


D.IV only


Answer Key: C

Question 4 of 15
1.0/ 1.0 Points
The mixture of debt and equity, used to finance a corporation is also known as:

A.Capital budgeting


B.Capital structure


C.Investing


D.Treasury


Answer Key: B

Question 5 of 15
1.0/ 1.0 Points
The following are some of the actions shareholders can take if the corporation is not performing well:

A.Replace the board of directors in an election.


B.Force the board of directors to change the management team.


C.Sell their shares of stock in the corporation.


D.Any of the above


Answer Key: D

Question 6 of 15
0.0/ 1.0 Points
Major disadvantages of the Sarbanes-Oxley Act of 2002 (SOX) are the following except:

A.good investor protection

B.increase in compliance costs


C.that it constrains managers' ability to run the firm


D.that it may discourage development of human capital in the firm


Answer Key: A

Question 7 of 15
1.0/ 1.0 Points
Present Value is defined as:

A.Future cash flows discounted to the present at an appropriate discount rate


B.Inverse of future cash flows


C.Present cash flow compounded into the future


D.None of the above


Answer Key: A

Question 8 of 15
0.0/ 1.0 Points
Present Value of $100,000 that is, expected, to be received at the end of one year at a discount rate of
25% per year is:

A.$80,000

B.$125,000


C.$100,000


D.None of the above


Answer Key: A
Feedback: PV = (100,000)/(1 + 0.25) = 80,000

Question 9 of 15
1.0/ 1.0 Points
If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the
NPV of the project?

A.$250,000


B.$50,000


C.$200,000


D.None of the above


Answer Key: B
Feedback: NPV = -200,000 + 250,000 = 50,000

Question 10 of 15
1.0/ 1.0 Points
According to the net present value rule, an investment in a project should be made if the:

A.Net present value is greater than the cost of investment


B.Net present value is greater than the present value of cash flows


C.Net present value is positive


D.Net present value is negative


Answer Key: C

Question 11 of 15
0.0/ 1.0 Points
An annuity is defined as

A.Equal cash flows at equal intervals of time for a specified period of time

B.Equal cash flows at equal intervals of time forever


C.Unequal cash flows at equal intervals of time forever


D.None of the above


Answer Key: A

Question 12 of 15
1.0/ 1.0 Points
The concept of compound interest is most appropriately described as:

A.Interest earned on an investment


B.The total amount of interest earned over the life of an investment


C.Interest earned on interest


D.None of the above


Answer Key: C

Question 13 of 15
1.0/ 1.0 Points
The following entities issue bonds to raise long-term loans except:

A.The federal government


B.State and local governments


C.Companies


D.Individuals


Answer Key: D

Question 14 of 15
1.0/ 1.0 Points
A 5-year treasury bond with a coupon rate of 8% has a face value of $1000. What is the semi-annual
interest payment? Annual interest payment = 1000(0.08) = $80; Semi-annual payment = 80/2 = $40

A.$80


B.$40


C.$100


D.None of the above


Answer Key: B
Feedback: Annual interest payment = 1000(0.08) = $80;
Semi-annual payment = 80/2 = $40


Question 15 of 15
1.0/ 1.0 Points
A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is:

A.9.09%


B.6.8%


C.14.6%


D.6.0%


Answer Key: A
Feedback: Volatility (%) = Duration/(1 + yield) = 10/1.1 = 9.09%