Find the annualized cost of a commercial paper issue the has a $1,000,000 face value,
matures in 180 days, has a placement fee of 1.5% and an interest charge of 8.5% over
the 6 month period it is outstanding.
a. 10%
b. 11.1%
c. 23.5%
d. none of the above
The interest rate charged by banks for short-term unsecured loans to their highest
quality business customers is referred to as the:
a. discount rate
b. federal fund rate
c. prime rate
d. all the above
Consolidated Freightways is financing a new truck with a loan of $60,000 to be repaid
in six annual end-of-year installments of $13,375. What annual interest rate is
Consolidated Freightways paying?
a. 7%
b. 8%
c. 9%
d. 10%
Daniel deposits $2,000 per year at the end of the year for the next 15 years into an IRA
account that currently pays 7%. How much will Daniel have on deposit at the end of the
15 years?
a. $39,981
b. $46,753
c. $49,002
d. $50,258
Ningbo Shipping has prepared the coming year’s pro forma balance sheet and has
estimated that external financing required would be $230,000. The firm should prepare
to
a. repurchase common stock totaling $230,000.
b. pay off an existing loan in the amount of $230,000.
c. do nothing; the balance sheet balances.
d. invest in marketable securities totaling $230,000.
e. none of the above
Which of the following statements is most correct?
a. Advance refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings€ regular maturity for new
securities of longer maturity.
b. Reverse refunding is one of the new debt-management techniques used to extend the
average maturity of the marketable debt without disturbing the financial markets and
occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings€ regular maturity for new
securities of longer maturity.
c. Extended refunding is one of the new debt-management techniques used to extend
the average maturity of the marketable debt without disturbing the financial markets
and occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings€ regular maturity for new
securities of longer maturity.
d. Laddered refunding is one of the new debt-management techniques used to extend
the average maturity of the marketable debt without disturbing the financial markets
and occurs when the Treasury offers the owners of a given issue the opportunity to
exchange their holdings well in advance of the holdings€ regular maturity for new
securities of longer maturity.
e. none of the above
An increase in the supply for loanable funds, holding demand constant, will cause
interest rates to:
a. increase
b. decrease
c. stay the same
d. not enough information to tell
____________________________ requires disclosure of the finance charge and the
annual percentage rate of credit along with certain other costs and terms to permit
consumers to compare the prices of credit from differing sources.
a. Truth in Lending Act
b. Equal Credit Opportunity Act
c. Federal Trade Commission Improvement Act
d. Fair Credit Billing Act
Ningbo Steel had year end 2011 and 2012 retained earnings balances of $6,000,000 and
$6,600,000 respectively. The firm paid $200,000 of dividends in 2011. Based on this
information, Ningbo Steel’s net profit after taxes in 2011 was:
a. $200,000
b. $600,000
c. $620,000
d. $6,200,000
e. none of the above
What is the NPV for the following project if its cost of capital is 12% and its initial
after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash flows
of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and ($1,300,000) in
year 4?
a. ($1,494,336)
b. $1,494,336
c. greater than zero
d. two of the above
The cost of retained earnings is:
a. the cheapest component cost
b. zero because the firm does not have to pay interest or dividend to itself
c. always less than the cost of new common stock
d. typically cheaper than the cost of preferred stock
A ski chalet in Vail now costs $250,000 to rent for a week during February. Inflation is
expected to cause this price to increase at 5 percent per year over the next 10 years
before Howard and his wife retire from successful investment banking careers. How
large an equal annual end-of-year deposit must be made into an account paying an
annual rate of interest of 13 percent in order to buy the ski chalet upon retirement?
a. $8,333
b. $13,572
c. $25,005
d. $22,109
The amount earned on a deposit becomes part of the principal at the end of a period and
can earn a return in future periods is called
a. discount interest.
b. compound interest.
c. primary interest.
d. future value.
A government raises funds to pay for its activities in two ways: levies taxes or prints
money for its own use.
The stand alone principle suggests that a project must be viewed separately from the
rest of the firm.
The three primary means that the Fed can use to exercise monetary policy includes
closed market operations, stabilizing reserve requirements, and freeing the Federal
discount rate.
The primary securities markets are
1. the markets for previously issued securities such as the New York Stock Exchange
2. the markets where financial assets such as stocks and bonds are initially issued
3. the three most important financial markets in any economy
4. the markets for stocks and bonds only
5.
The principle of finance that “money has a time value” implies Money in hand today is
worth less than the promise of receiving the same amount in the future because a sum
of money today could be invested and grow over time.
The Federal Open Market Committee directs open market operations by buying and
selling government securities which are the primary instruments of exercising monetary
policy.
Unemployment and welfare benefits are examples of transfer payments for which no
current productive services are given in return.
With compound interest, interest is earned only on the investment’s principal.
The traveler’s letter of credit is issued by a bank to banks in other countries authorizing
foreign banks to cash checks or purchase drafts presented by the bearer.