Finance true or false (ch 1, 3, 4)
Ceteris paribus, as a debtor and for the same annual interest rate, you would prefer simple interest to compound interest.
True
FVs represent the amount that an earlier amount will grow into.
True
There are 3 formulas on our formula sheet that contain the variable "PMT.
True
We've discussed 3 different multiple cash flow patterns.
True
In a Normal Distribution, there is a 68% chance that an actual return will exceed the average return plus one standard deviation.
Fasle
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
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 amount.
True
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
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
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
Annuities are unequal cash flows that go on for a finite period of time.
False
"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-time 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
The capital budgeting area deals with how the firm should be financed.
False
There are a total of 5 variables in the basic TVM 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
"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
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
PVs are leftward on a time line and FVs are rightward on the time line.
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
