I-Core Finance Midterm
A plot drawn to show the relationship between bond yields and maturity is known as the A Yield curve B break-even point C total revenue curve D total cost curve
A
Long-term bond prices are more sensitive than short-term bond prices to A increases in interest rates B public elections C changes in company policy D downturns in the economy
A
The banking crisis of 2007-2009 shows that investors prefer ________ in bonds; therefore, heavily traded bonds offer ________ yields. A higher liquidity, lower B less liquidity, higher C higher liquidity, higher D less liquidity, lower
A
True or false: the discount factor refers to the present value of a $1 future payment. A True B False
A
Which type of price refers to the purchasing power of money? A. real B. current C. nominal
A
At a rate of interest of 10% (r), the present value (PV) or $100 will ___________ as the time period (t) ________________. A decrease; decreases B decrease; increases C remain constant; increases D increase; increases
B
Because the _____ rate is uncertain, so is the _______ rate of interest offered on bonds. A real, inflation B inflation, nominal C nominal, inflation D inflation, real
B
C/r is the formula for the present value of a(n) ____. A growing perpetuity B perpetuity C annuity D growing annuity
B
If interest rates go down, the present value of a perpetuity will _________ A remain unchanged B increase C decrease
B
If interest rates go down, the present value of a perpetuity will _____________. A remain unchanged B increase C decrease
B
If the interest rate is greater than zero, the present value of an annuity is always _______ an ordinary annuity. A equal to B greater than C less than
B
Interest income is _____________ to interest rate. A inversely proportional B directly proportional C unrelated
B
The effective annual interest rate is equal to: A. (1 + m)APR - 1 B. (1 + APR/m)m - 1 C. (1 + APR*m)m - 1 D. (1 + APR)m - 1
B
The future value of an annuity that lasts n years is equal to A the present value of a perpetuity. B the present value allowed to grow n years. C the future value of a perpetuity. D the present value allowed to grow n+1 years.
B
The value in t years of an investment made today at interest rate r is called the ___________ of your investment. A present value B future value C simple value D compound value
B
Which of the following is the correct formula for the discount factor? A 1/(1+r) B 1/(1+r)t C (1+r) D 1/(1+r) x t
B
A series of level payments that begins immediately for a specified period of time is called a(n): A delayed annuity B corporate bond C annuity due D perpetuity due
C
A stream of cash flows means that ________. A payments are made at the end of a project B payments are made up front C payments are made over time
C
Discounting a future value FV at interest rate r over time t is termed a ______________ calculation. A discounted interest B discounted present factor C discounted cash-flow D present interest
C
If interest rates go up, the present value of a perpetuity will _____________. A remain unchanged B increase C decrease
C
If the bond's yield to maturity remains unchanged during the period, the bond price changes with time so that the total return on the bond is _______ the yield to maturity A less than B greater than C equal to
C
If the interest rate (r) increases, what will happen to present value (PV) over time? A PV will remain constant B PV will increase C PV will decline
C
Real cash flow must be discounted by the A Real interest rate B nominal GDP C nominal interest rate D real deflation rate
C
The _________ measures the return to investors if they buy a bond at the asked price and hold it to maturity. A current yield B yield curve C asked yield to maturity D opportunity cost of capital
C
The present value of an annuity of $1 per period is called the ______________. A interest rate B perpetuity C annuity factor D annuity payment
C
Which of the following is the correct equation for the present value of an annuity with regular payment C for t periods at interest rate r? A PV = C/rt B PV = C/(1+r)t - C/r C PV = C[1/r - 1/r(1+r)t] D PV = C/r
C
Another name for the interest rate used to calculate PV is the ______ rate. A money market B federal funds C inflation D discount
D
The U.S. Treasury issues ___________, which adjust nominal cash flows based on the consumer price index. A NPV B SOX C MBS D TIPS
D
The difference between the bid price and the asked price of a bond is the _______. A opportunity cost of capital B inflation rate C interest rate D spread
D
The present value formula for a(n) ______ is PV = C/r, where C is the constant and regularly timed cash flow to infinity, and r is the interest rate. A growing perpetuity B annuity C growing annuity D perpetuity
D
The present value of an annuity due is equal to the: A present value of ordinary annuity + (1 - r) B present value of an ordinary annuity/(1+r) C present value of an ordinary annuity x r D present value of an ordinary annuity x (1+r)
D