Finance 3130

Ace your homework & exams now with Quizwiz!

The value of a bond investment, which provides fixed interest payments, will increase when discounted at a 8% rate rather than at a 11% rate

True

Tim has a $100 in a bank account paying 2% interest per year. At the end of 5 years, Tim's bank account balance will be $110 if interest is not compounded but will be greater than $110 if interest is compounded

True

Tim invested $1,000 in a mutual fund paying 8% per year. John invested $500 in the same fund. If both Tim and John keep their money invested for the same period of time, Tim will end up with twice as much money as John

True

Total risk equals systematic risk plus unsystematic risk

True

Variation in the rate of return of an investment is a measure of the riskiness of that investment

True

When solving a problem involving an annuity due, you must select the "beg" or beginning mode on your financial calculator

True

When using a financial calculator, cash outflows generally have to be entered as negative numbers, because a financial calculator sees money "leaving your hands"

True

Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price

True

The same underlying formula is used for computing both the future value and present value

True

The required rate of return for an asset is equal to the risk-free rate plus a risk premium

True

A car manufacturer offers either $2,000 cash back or zero percent financing for 5 years. A rational consumer will always take the cash back because money received today is worth more than money received in the future

False

A company with AAA bond rating will command a higher interest rate on its bonds than a company with a lesser BBB bond rating

False

A return of 12% compounded annually is the same as a return of 1% per month

False

As the required rate of return of an investment decreases, the market price of the investment decreases

False

If the interest rate is positive, then the present value of an annuity will be less than the present value of an ordinary annuity

False

Proper diversification generally results in the elimination of risk

False

When solving time value of money problems on a financial calculator, you must select the "end mode" when you enter the final years cash flow

False

A certificate of deposit that pays 9.8% compounded monthly is better than a similar certificate of deposit that pays 10% compounded only once per year

True

A share of preferred stock that pays the same annual dividend forever is an example of a perpetuity

True

According to the CAPM for each unit of Beta an asset's required rate increases by the market's risk premium

True

An example of an annuity is the interest received from bonds

True

Beta is a measurement of the relationship between a security's returns and the general market's returns

True

Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65, when he retires. The amount Bill has in his IRA at age 65 can be characterized as the future value of an annuity

True

Bond prices are inversely related to market interest rates

True

If a bond has market value that is higher than its par value, then the required return on the bond must be less than the bond's coupon rate

True

If a bond sells for its par value, the coupon interest rate and yield to maturity are equal

True

If the future value of an annuity is known, then the present value of the annuity can be found using the present value of a lump sum formula, even if the amount of each annuity payment is unknown

True

If we invest money for 10 years at 8 percent interest, compounded semiannually, we are really investing money for 20 six-month periods, and receiving 4 percent interest each period

True

In general, the required rate of return is a function of (1) Time value of money, (2) The risk of an asset, and (3) the investor's attitude toward risk

True

It is never appropriate to compare nominal rates unless they include the same number of compounding periods per year

True

Subordinated debentures are more risky than unsubordinated debentures because the claims of subordinated debenture holders are less likely to be honored in the event of liquidation

True

The YTM is the discount rate that equates the present value of the interest and principal payments with the current market price of the bond

True

The expected rate of return from an investment is equal to the expected cash flows divided by the initial investment

True

The future value of an annuity due is greater than the future value of an otherwise identical ordinary annuity.

True

The future value of an annuity will increase if the interest rate goes up, but the present value of the same annuity will decrease as the interest rate goes up

True

The par value of a corporate bond indicates the payment that the issuer promises to make the bondholder at maturity

True

The present value of a deferred annuity can be calculated in two steps (1) calculate the future value of the annuity, and (2) calculate the present value of the amount determined in step (1)

True


Related study sets

The Revolution in Energy and Industry

View Set

Exam 1- learning objectives (2700)

View Set

What Is Psychology? - Quiz (100%)

View Set