True or false. No explanation is required. 1. Flipagram’s funding has come from

Question

True or false. No explanation is required.

1.Flipagram’s funding has come from venture capitalists.

2.A TIPS bond would have low duration.

3.For most venture capital investments debt is an important source of funding.

4.A project with a high IRR would have a high NPV.

5.Most US corporate bonds are investment grade.

6.Most US corporate convertible bonds are investment grade.

7.Assume Mehta and Gonzalez are both firms in the Mexican steel manufacturing industry. Mehta has no debt and Gonzalez is 50% debt. Both firms have comparable market values. According to the CAPM, Gonzalez should have a higher expected return.

8.Investors react negatively (i.e., a < 0 on the announcement date) to a firm announcing a secondary equity offering.

9.For a project with no negative future outflows the discounted payback period cannot be shorter than the accounting (non-discounted) payback period.

10.Assume Rodriquez Inc. has a 5-year maturity non-convertible zero coupon bond. If interest rates fall by 1% we would expect that this bond price would rise by about 5%.

11.Assume Rodriquez Inc. has a 5-year maturity convertible zero coupon bond. If interest rates fall by 1% we would expect that this bond price would rise by about 5%.

Explanation / Answer

1.Flipagram’s funding has come from venture capitalists. TRUE 2.A TIPS bond would have low duration. TRUE 3.For most venture capital investments debt is an important source of funding. TRUE 4.A project with a high IRR would have a high NPV. FALSE 5.Most US corporate bonds are investment grade. TRUE 6.Most US corporate convertible bonds are investment grade. TRUE 7.Assume Mehta and Gonzalez are both firms in the Mexican steel manufacturing industry. Mehta has no debt and Gonzalez is 50% debt. Both firms have comparable market values. According to the CAPM, Gonzalez should have a higher expected return. FALSE 8.Investors react negatively (i.e., a < 0 on the announcement date) to a firm announcing a secondary equity offering. TRUE 9.For a project with no negative future outflows the discounted payback period cannot be shorter than the accounting (non-discounted) payback period. TRUE 10.Assume Rodriquez Inc. has a 5-year maturity non-convertible zero coupon bond. If interest rates fall by 1% we would expect that this bond price would rise by about 5%. TRUE 11.Assume Rodriquez Inc. has a 5-year maturity convertible zero coupon bond. If interest rates fall by 1% we would expect that this bond price would rise by about 5%. TRUE

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