1) The estimated value of reducing float by 1-day is one day’s interest on the freed up
sales.
2) U.S. Treasury Bills are extremely liquid due to excellent secondary markets.
3) The required return of a preferred stockholder, rps, is higher than the cost of
preferred stock for the corporation because stockholder’s must pay federal taxes on their
dividend income.
4) Financial ratios are often reported by industry or line of business because differences
in the type of business can make ratio comparisons uninformative or even misleading.
5) A company with a AAA bond rating will command a higher interest rate on its bonds
than a company with a lesser BBB bond rating.
6) The risk-adjusted discount rate method implicitly assumes that distant cash flows
have the same risk as near cash flows.
7) The forward-spot differential is the difference between the forward rate and the
expected future spot rate.
8) The just-in-time inventory control system is just a new approach to the EOQ model
which tries to produce the lowest average inventory possible.
9) The inclusion of a compensating balance requirement in a line of credit will reduce
the effective annual cost of credit since the bank has additional collateral for the
borrowing.
10) Total debt must always be equal to the sum of temporary, permanent, and
spontaneous sources of financing.
11) A major risk in using commercial paper for short-term financing is the inflexible
repayment schedule.
12) Yields on various financial instruments tend to be positively correlated with
maturity.
13) If a bond sells for its par value, the coupon interest rate and yield to maturity are
equal.
14) The payment of a dividend to current shareholders will have no impact on a
corporation’s share price because the cash paid is not available to future potential
shareholders who may want to buy the corporation’s stock.
15) For a well-diversified investor, an investment with an expected return of 10% with a
standard deviation of 3% dominates an investment with an expected return of 10% with
a standard deviation of 5%.
16) Junk bonds are also called high-yield bonds.