Answer Options:
a. True
b. False
Answer: a. True
Question: Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly.
Answer Options:
a. True
b. False
Answer: b. False
Question: The SML relates required returns to firms’ systematic (or market) risk. The slope and intercept of this line can be influenced by a manager’s actions.
a. True
b. False
Answer Options:
Answer: False
Question: Which of the following factors would be most likely to lead to an increase in nominal interest rates?
a. Households reduce their consumption and increase their savings.
b. A new technology like the Internet has just been introduced, and it increases investment opportunities.
c. There is a decrease in expected inflation.
d. The economy falls into a recession.
e. The Federal Reserve decides to try to stimulate the economy.
Answer Options:
Answer: b. A new technology like the Internet has just been introduced, and it increases investment opportunities.
Question: Because short-term interest rates are much more volatile than long-term rates, you would, in the real world, generally be subject to much more price risk if you purchased a 30-day bond than if you bought a 30-year bond.
Answer Options:
a. True
b. False
Answer: b. False
Question: The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) weather conditions.
Answer Options:
a. True
b. False
Answer: b. False
Question: You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $1,000 par value bond for $800. The coupon rate is 10% (with annual payments), and there are 10 years before the bond will mature and pay off its $1,000 par value. You should buy the bond if your required return on bonds with this risk is 12%.
Answer Options:
a. True
b. False
Answer: a. True
Question: Which of the following statements is CORRECT?
a. The yield on a 2-year corporate bond should always exceed the yield on a 2-year Treasury bond.
b. The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond.
c. The yield on a 3-year Treasury bond should always exceed the yield on a 2-year Treasury bond.
d. If inflation is expected to increase, then the yield on a 2-year bond should exceed that on a 3-year bond.
Answer Options:
Answer: a. The yield on a 2-year corporate bond should always exceed the yield on a 2-year Treasury bond.
Question: Since the market return represents the expected return on an average stock, the market return reflects a certain amount of risk. As a result, there exists a market risk premium, which is the amount over and above the risk-free rate that is required to compensate stock investors for assuming an average amount of risk.
a. True
b. False
Answer Options:
Answer: True
Question: As a general rule, a company’s debentures have higher required interest rates than its mortgage bonds because mortgage bonds are backed by specific assets while debentures are unsecured.
Answer Options:
a. True
b. False
Answer: a. True
Question: Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts.
Answer Options:
a. True
b. False
Answer: b. False
Question: Which of the following bonds has the greatest price risk?
a. A 10-year $100 annuity.
b. A 10-year, $1,000 face value, zero coupon bond.
c. A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.
d. All 10-year bonds have the same price risk since they have the same maturity.
e. A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.
Answer Options:
a. False
b. True
c. False
d. False
e. False
Answer: b. True
Question: Determine the molar mass of each of this gas. 2.99 g of this gas occupies 1.83 L at STP.
Answer Options:
[A] 28.96 g/mol
[B] 34.20 g/mol
[C] 44.01 g/mol
[D] 36.46 g/mol
Answer: 36.64 g/mol
Question: A gas sample has a temperature of 32°C with an unknown volume. The same gas has a volume of 5.36 L when the temperature is 85°C, with no change in the pressure or amount of gas. What was the initial volume, in L, of the gas?
Answer Options:
[A] 4.00 L
[B] 6.00 L
[C] 4.84 L
[D] 5.00 L
Answer: 4.55 L
Question: Which of the following statements is CORRECT?
a. Even if the pure expectations theory is correct, there might at times be an inverted Treasury yield curve.
b. If the yield curve is inverted, short-term bonds have lower yields than long-term bonds.
c. The higher the maturity risk premium, the higher the probability that the yield curve will be inverted.
d. Inverted yield curves can exist for Treasury bonds, but because of default premiums, the corporate yield curve cannot become inverted.
e. The most likely explanation for an inverted yield curve is that investors expect inflation to increase in the future.
Answer Options:
Answer: a. Even if the pure expectations theory is correct, there might at times be an inverted Treasury yield curve.