Finance Exam 1
"When given the annual withdrawals desired during the retirement period, the FVA tells us the amount we should have accumulated by the time we begin the retirement period.
False
A lump sum can be a one-time earlier but not a one-tiime later cash flow.
False
According to the Order of Operations, exponents are applied before the expression in parentheses, and addition and subtraction are to be completed before multiplication and division
False
Annuities are unequal cash flows that go on for a finite period of time.
False
At maturity, investors must repay a bond's par value to the lender.
False
A $1,000 par value bond with an annual coupon rate of 10% would pay $100 in interest every 6 months.
False
Ceteris paribus, as the frequency of compounding decreases, the EAR will exceed theAPR by greater and greater amounts.
False
Ceteris paribus, the FV and the number of periods are inversely related.
False
Compounding is the process used to find a PV.
False
FVs are earlier values and PVs are later values.
False
FVs represent what you need to invest later to have it grow into a specified earlier amount.
False
For a given mean, a larger standard deviation means that actual returns that are far from the mean are less likely to occur.
False
If you buy a bond at par and hold it to maturity, you will experience a capital gain.
False
In a Normal Distribution, there is a 68% chance that an actual return will exceed the average return plus one standard deviation.
False
Interest rates were high in the late 1970s and early 1980s because of unusually high default premiums.
False
Nominal interest rates are the sum of two major components: the real interest rate and the maturity premium.
False
Premium bonds are always worth more than par value at maturity.
False
The EAR will always be greater than the APR.
False
The capital budgeting area deals with how the firm should be financed.
False
The goal of the corporate financial manager is to maximize the firm's market share.
False
The number of years it would take an investment to double is approximately equal to the annual interest rate divided 72.
False
The principal part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by the ending balance for a given period.
False
There are a total of 5 variables in the basic TVM lump-sum formulas.
False
The right-hand side variables in the discount rate formula represent the 3 key factors determining stock prices.
False
To change a decimal value to a percent, divide by 100.
False
We can determine which "PMT" we're being asked to solve for by noting what the problem provides in terms of r and n.
False
We can find the nominal interest rate by subtracting the default and maturity premiums from the sum of the real rate and inflation.
False
You can earn a higher return by purchasing zero-coupon bonds at a premium
False
Present value. A smooth-talking used-car salesman who smiles considerably is offering you a great deal on a "pre-owned" car. He says, "For only 4 annual payments of $2,400, this beautiful 1998 Honda Civic can be yours." If you can borrow money at 9%, what is the price of this car? Assume the payment is made at the end of each year.
If you can borrow money at 9%, what is the price of this car? $7775.33
List a capital budgeting decision, a capital structure decision, and a working capital management decision a business might make.
That a company chooses a new product to introduce into the market is a capital budgeting decision, that a company chooses to sell a bond to finance the new product is a capital structure decision, and that a company sets production and inventory levels on the new product is a working capital management decision.
"PMT" in the PVA formula tells us the periodic mortgage payments for a fixed-rate fully amortized loan.
True
A simple percent change represents a change as part of the old or earlier value.
True
Capital losses always reduce the investor's rate of return.
True
Ceteris paribus, as a debtor and for the same annual interest rate, you would prefer simple interest to compound interest.
True
Ceteris paribus, bond prices move in the same direction as their coupon rates.
True
FVs represent the amount that an earlier amount will grow into.
True
For fixed-rate fully amortized mortgage loans, more of the fixed payment goes towards principal as we approach the end of the loan term.
True
Given the amount needed at the beginning of the retirement period, the annual deposits needed during the working period can be found by solving for "PMT" in the FVA formula.
True
If the top of a fraction is unchanged and the bottom of a fraction decreases by 5%, then the value of the whole fraction would increase by approximately 5%.
True
In the period 1950 - 1999 changes in the inflation premium was the main factor causing nominal interest rates to change.
True
PVs are leftward on a time line and FVs are rightward on the time line.
True
The Fisher Effect illustrates the positive relationship between inflation and nominal interest rates.
True
The Fisher Effect is the relationship between three items: the nominal rate, the real rate, and inflation.
True
The YTM on a discount bond will be above its coupon rate.
True
The penalty for spending before earning is the interest rate from the point of view of the borrower.
True
The working capital management area deals with how much of a firm's assets should be held in cash, inventory and accounts receivable.
True
We can find the amount needed to pay off a fixed-rate fully amortized mortgage loan at any point in time by solving for the PV of the remaining payments.
True
We've discussed 3 different multiple cash flow patterns.
True
What is "discounted" from the FV is the interest part to arrive at the PV.
True
With compound interest, interest is earned every period on that period's starting am
True
Future Value: Upstate University charges $23,000 a year in graduate tuition. Tuition rates are growing at 3.5% each year. You plan to enroll in graduate school in five years. What is your expected graduate tuition in five years?
What is your expected graduate tuition in five years? $27316.79
