S66 - Unit 3

One of the most common uses of the net present value calculation is for A. a parents to compute the amount needed for education funding B. a corporation to determine the feasibility of investing in capital equipment C. an investment adviser to compute the expected returns from a portfolio D. determining how close a stock's return is to the efficient frontier

a corporation to determine the feasibility of investing in capital equipment.

Which of these is a definition of inflation? A. a decrease in consumer demand B. an increase in the value of the dollar C. an increase in purchasing power D. a decrease in the value of the monetary unit

a decrease in the value of the monetary unit

The terms mean, median, and mode are all measures of A. beta coefficient B. central tendency C. correlation coefficient D. standard deviation

central tendency

Your client has $10K to invest today and expects to earn an after-tax return of 8% to send his daughter to college in 12 years. Which of the following is needed to determine whether the investment is likely to satisfy the client's goal? A. present value B. expected cost of college C. consumer price index D. client's marginal federal income tax bracket

expected cost of college

Which of the following are considered unsystematic risks? I. business II. liquidity III. market IV. purchasing power

i and ii

Which of the following describe non systematic risk? I. the risk that an individual stock will not perform well II. the same as market risk III. can be diversified away IV. cannot be diversified to lower risk

i and iii

The future value of an invested dollar is dependent on I. the exchange rate of the dollar at the beginning and end of the period II. the interest rate at maturity III. the rate of return it earns IV. the time period over which it is invested

iii and iv

The present value of a dollar A. is the amount of goods and services the dollar will buy in the future at today's rate price level B. indicates how much needs to be invested today at a given interest rate to equal a specific cash value in the future C. is equal to its future value if the level of interest rates stays the same D. cannot be calculated without knowing the level of inflation

indicates how much needs to be invested today at a given interest rate to equal a specific cash value in the future

The risk of not being able to convert an investment into cash at a time when cash is needed is what type of risk? A. legislative B. liquidity C. market D. reinvestment

liquidity

In October 1987, ABC Manufacturing Company showed a strong balance sheet. Nevertheless, its stock lost 15 points in the "crash of 1987." This is an example of A. business risk B. beta C. opportunity risk D. market risk

market risk

What happens to outstanding fixed-income securities when interest rates decline? A. yields go up B. coupon rates go up C. prices go up D. no change

prices go up

Balance sheets contain A. gross revenues for the year B. the amount of cash and cash equivalents expended during the first half of the fiscal year as opposed to the second half C. the net worth of the firm at the end of the reporting period D. no reference to the accounting methods used to construct the balance sheet

the net worth of the firm at the end of the reporting period.

The risk to bondholders that bonds may lose value during periods of increasing inflation is know as A. credit risk B. reinvestment risk C. marketability risk D. interest rate risk

- interest rate risk

If a publicly traded corporation was going to sell a wholly-owned subsidiary, the information would be made available through the filing of a Form A. 8-K B. 10-K C. 10-Q D. 13-F

8-K

All of the following statements regarding an investment's IRR are true EXCEPT A. IRR expresses the rate of interest that matches the initial investment with the present value of FCFs B. investments are acceptable when their internal rates of return exceed the investor's required RoR C. IRR cannot be calculated for investments with uneven CFs D. IRR is the one RoR that results in an investment having a NPV of 0

IRR cannot be calculated for investments with uneven CFs