Answer Options:
a. True
b. False
Answer: b. False
Question: Which of the following statements is CORRECT?
Answer Options:
a. A time line is not meaningful unless all cash flows occur annually.
b. Time lines are not useful for visualizing complex problems prior to doing actual calculations.
c. Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
d. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.
e. Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.
Answer: d. Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.
Question: Gastric juice consists of ____________.
Answer Options:
a) Water
b) Pepsin
c) Hydrochloric acid
d) Mucus
e) All of the above
f) Only a and c
Answer: e) All of the above
Question: Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?
Answer Options:
a. The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
b. A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
c. A bank loan’s nominal interest rate will always be equal to or greater than its effective annual rate.
d. If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.
e. Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.
Answer: d. If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.
Question: If you plotted the returns on a given stock against those of the market, and you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the stock should be greater than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue into the future.
a. True
b. False
Answer Options:
Answer: False
Question: The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond’s remaining maturity.
Answer Options:
a. True
b. False
Answer: a. True
Question: A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?
Answer Options:
a. The periodic interest rate is greater than 3%.
b. The periodic rate is less than 3%.
c. The present value would be greater if the lump sum were discounted back for more periods.
d. The present value of the $1,000 would be larger if interest were compounded monthly rather than semiannually.
e. The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity.
Answer: e. The PV of the $1,000 lump sum has a smaller present value than the PV of a 3-year, $333.33 ordinary annuity.
Question: You plan to invest some money in a bank account. Which of the following banks provides you with the highest effective rate of interest?
Answer Options:
a. Bank 1; 6.1% with annual compounding.
b. Bank 2; 6.0% with monthly compounding.
c. Bank 3; 6.0% with annual compounding.
d. Bank 4; 6.0% with quarterly compounding.
e. Bank 5; 6.0% with daily (365-day) compounding.
Answer: e. Bank 5; 6.0% with daily (365-day) compounding.
Question: Which of the following statements is CORRECT?
a. All else equal, senior debt generally has a lower yield to maturity than subordinated debt.
b. An indenture is a bond that is less risky than a mortgage bond.
c. The expected return on a corporate bond will generally exceed the bond’s yield to maturity.
d. If a bond’s coupon rate exceeds its yield to maturity, then its expected return to investors will also exceed its yield to maturity.
e. Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated.
Answer Options:
a. True
b. False
c. False
d. False
e. False
Answer: a. True
Question: Which food amounts “count as 1 ounce-equivalent of grains”? [Note: There are more than one correct answer.]
Answer Options:
[A] 5 whole wheat crackers
[B] 1 cup cooked oatmeal/rice/pasta
[C] 1 6-inch corn tortilla
[D] 3 cups popped popcorn
[E] 1 English muffin
Answer: 1 cup cooked oatmeal/rice/pasta
1 6-inch corn tortilla
3 cups popped popcorn
Question: Which of the following statements is CORRECT?
a. If inflation is expected to increase in the future, and if the maturity risk premium (MRP) is greater than zero, then the Treasury yield curve will have an upward slope.
b. If the maturity risk premium (MRP) is greater than zero, then the yield curve must have an upward slope.
c. Because long-term bonds are riskier than short-term bonds, yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds.
d. If the maturity risk premium (MRP) equals zero, the yield curve must be flat.
e. The yield curve can never be downward sloping.
Answer Options:
Answer: a. If inflation is expected to increase in the future, and if the maturity risk premium (MRP) is greater than zero, then the Treasury yield curve will have an upward slope.