1) If everything else is assumed constant, as the investor\'s required rate of r
ID: 2713256 • Letter: 1
Question
1) If everything else is assumed constant, as the investor's required rate of return decreases, the value of a security _____.
stays the same
increases
decreases
has no relation to the investor's required rate of return
2)
Which of the following components [A., B. and C.] make up the Risk Free Rate?
A. Real Return
B. Expected Inflation
C. Risk
Both A. and B .
Both B. and C.
All of the above [A., B. and C.] make up the Risk Free Rate.
3)
What is the Price/Value of a 7-year, $1,000 par bond with a 6% coupon. The market interest rate is 12%.
$1,000.00
$876.66
$726.17
$1,060.00
4)
The Market Interest Rate is equivalent to the _____.
Yield to Call [YTC]
Yield to Maturity {YTM}
Federal Funds Rate
5) Only the cost of ___ is reduced by the tax rate in the WACC.
preferred stock
retained earnings
new common stock
debt
6) Yesterday, you calculated the value of an annuity that you might buy using the current investment rate of 4.72%. Today, however, your investment interest rate has increased to 5.23%. What has happened to the value of the annuity?
Nothing, as changing interest rates do not affect the value of annuities.
The annuity value increased.
The annuity value decreased.
All of the above.
7) A graph of debt securities yields versus time to maturity for similar risk securities is called a(n) ____.
ugly plot
yield curve
annuity plot
none of the above
8) There are three components of the nominal interest rate; the component indicating the compensation an investor must receive for giving up immediate gratification of using money is the _____. [Video]
risk premium
expected inflation
real return
expected variance
9) The organization in the United States considered to be risk free is _____.
county governments
state governments
Uncle Sugar (U. S. Government)
10) What is the P/E ratio of a stock?
The total value of the company's outstanding shares.
The ratio of dividends paid to share price.
The ratio of stock price to earnings.
None of the above.
11) Larry wants to spend $200,000 a year during his retirement over an expected 25 years. If Larry expects his retirement account can earn 4.37% over his retirement, about how much does Larry need in his retirement account when he retires?
$5,000,000.00
$8,756,732,90
$3,005,730.35
Not enough information to work the problem.
12) A(n) ___ bond can be exchanged for stock.
putable
convertible
indexed
income
13) An already issued stock is traded in the ____ market.
U.S. government action
secondary
primary
foreign government
14) In calculating the WACC, the weight [percent] of each component of the WACC is determined using the ______.
firm's Assets
firm's Capital Structure
the distribution of Net Income
All of the above
stays the same
increases
decreases
has no relation to the investor's required rate of return
Explanation / Answer
ANSWER 1 INCREASES. EXAMPLE.100/0.2=500
100/0.1=1000
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