Finance test2

Which of the following statements is​ false?A.The principal or face value of a bond is the notional amount we use to compute the interest payments.B.The promised interest payments of a bond are called coupons.C.The coupon rate of a bond is set by the issuer and stated on the bond certificate.D.Payments are made on bonds until a final repayment​ date, called the term date of the bond. D.Payments are made on bonds until a final repayment​ date, called the term date of the bond.
Which of the following statements is​ false?A.The bond certificate indicates the amounts and dates of all payments to be made.B.The only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.C.The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.D.Usually the face value of a bond is repaid at maturity. B.The only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.
Which of the following statements is​ false?A.The amount of each coupon payment is determined by the coupon rate of the bond.B.Treasury bills are U.S. government bonds with a maturity of up to one year.C.The simplest type of bond is a zerominus−coupon bond.D.Prior to its maturity​ date, the price of a zerominus−coupon bond is always greater than its face value. D.Prior to its maturity​ date, the price of a zerominus−coupon bond is always greater than its face value.
Suppose a fiveminus− year bond with a​ 7% coupon rate and semiannual compounding is trading for a price of​ $951.58. Expressed as an APR with semiannual​ compounding, this bonds yield to maturity​ (YTM) is closest​ to:A.​8.2%.B.​7.0%C.​7.8%D.​7.5% A.​8.2%
Use the information for the​ question(s) below.The Sisyphean Company has a bond outstanding with a face value of​ $1000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is​ 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is​ 9%, then this bond will trade atA.a premium.B.a discount.C.par.D.None of the above B.a discount.
Which of the following statements is​ false?A.At any point in​ time, changes in market interest rates affect a​ bond’s yield to maturity and its price.B.If the bond trades at a​ discount, and investor who buys the bond will earn a return both from receiving the coupons and from receiving a face value that exceeds the price paid for the bond.C.Coupon bonds always trade for a discount.D.Most coupon bond issuers choose a coupon rate so that the bonds will initially trade​ at, or very near​ to, par. C.Coupon bonds always trade for a discount.
Which of the following statements is​ false?A.If a coupon​ bond’s yield to maturity exceeds its coupon​ rate, the present value of its cash flows at the yield to maturity will be greater than its face value.B.The clean price of a bond is adjusted for accrued interest.C.A bond trades at par when its coupon rate is equal to its yield to maturity.D.The price of the bond will drop by the amount of the coupon immediately after the coupon is paid. A.If a coupon​ bond’s yield to maturity exceeds its coupon​ rate, the present value of its cash flows at the yield to maturity will be greater than its face value.
Which of the following statements is​ false?A.Coupon bonds may trade at a​ discount, at a​ premium, or at par.B.The sensitivity of a​ bond’s price changes in interest rates is the​ bond’s duration.C.Prices of bonds with lower durations are more sensitive to interest rate changes.D.When a bond is trading at a​ discount, the price increase between coupons will exceed the drop when a coupon is​ paid, so the​ bond’s price will rise and its discount will decline as time passes. C.Prices of bonds with lower durations are more sensitive to interest rate changes.
If a bond is currently trading at its face​ (par) value, then it must be the case thatA.the​ bond’s yield to maturity is less than its coupon rate.B.the bond is a zerominus−coupon bond.C.the​ bond’s yield to maturity is equal to its coupon rate.D.the​ bond’s yield to maturity is greater than its coupon rate. C.the​ bond’s yield to maturity is equal to its coupon rate.
Which of the following statements is​ false?A.NPV is positive only for discount rates greater than the internal rate of return..B.About​ 75% of firms surveyed used the NPV rule for making investment decisions.C.If you are unsure of your cost of capital​ estimate, it is important to determine how sensitive your analysis is to errors in this estimate.D.To decide whether to invest using the NPV​ rule, we need to know the cost of capital. A.NPV is positive only for discount rates greater than the internal rate of return.
Which of the following statements is​ FALSE?A.If you are unsure of your cost of capital​ estimate, it is important to determine how sensitive your analysis is to errors in this estimate.B.If the cost of capital estimate is more than the​ IRR, the NPV will be positive.C.The IRR can provide information on how sensitive your analysis is to errors in the estimate of your cost of capital.D.In​ general, the difference between the cost of capital and the IRR is the maximum amount of estimation error in the cost of capital estimate that can exist without altering the original decision. B.If the cost of capital estimate is more than the​ IRR, the NPV will be positive.
Which of the following statements is​ FALSE?A.The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital.B.There are situations in which multiple IRRs exist.C.The IRR investment rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital.D.Since the IRR rule is based upon the rate at which the NPV equals​ zero, like the NPV decision​ rule, the IRR decision rule will always identify the correct investment decisions. D.Since the IRR rule is based upon the rate at which the NPV equals​ zero, like the NPV decision​ rule, the IRR decision rule will always identify the correct investment decisions.
The internal rate of return rule can result in the wrong decision if the projects being compared haveA.differences in scale.B.differences in timing.C.differences in NPV.D.A and B are correct. D.A and B are correct.
Which of the following statements is​ false?A.The payback rule is useful in cases where the cost of making an incorrect decision might not be large enough to justify the time required for calculating the NPV.B.For most investment opportunities expenses occur initially and cash is received later.C.Fifty percent of firms surveyed reported using the payback rule for making decisions.D.The payback rule is reliable because it considers the time value of money and depends on the cost of capital. D.The payback rule is reliable because it considers the time value of money and depends on the cost of capital.
Consider two mutually exclusive projects A​ & B. If you subtract the cash flows of opportunity B from the cash flows of opportunity​ A, then you should A.take opportunity A if the regular IRR exceeds the cost of capital.B.take opportunity B if the regular IRR exceeds the cost of capital.C.take opportunity B if the incremental IRR exceeds the cost of capital..D.take opportunity A if the incremental IRR exceeds the cost of capital. D.take opportunity A if the incremental IRR exceeds the cost of capital.
Which of the following statements is​ false?A.If there is a fixed supply of resource​ available, you should rank projects by the profitability​ index, selecting the project with the lowest profitability index first and working your way down the list until the resource is consumed.B.The profitability index is calculated as the NPV divided by the resources consumed by the project.C.Practitioners often use the profitability index to identify the optimal combination of projects when there is a fixed supply of resources.D.If there is a fixed supply of resources​ available, so that you cannot undertake all possible​ opportunities, then simply picking the highest NPV opportunity might not lead to the best decision. A.If there is a fixed supply of resource​ available, you should rank projects by the profitability​ index, selecting the project with the lowest profitability index first and working your way down the list until the resource is consumed.
Which of the following statements is​ false?A.The profitability index can can be easily adapted for determining the correct investment decisions when multiple resource constraints exist.B.The profitability index is the ratio of value created to resources consumed.C.The profitability index measures the value created in terms of NPV per unit of resource consumed.D.The profitability index measures the​ “bang for your​ buck.” A.The profitability index can can be easily adapted for determining the correct investment decisions when multiple resource constraints exist.
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Explain why the yield of a bond that trades at a discount exceeds the​ bond’s coupon rate.A.The​ bond’s coupon yield is irrelevant. It trades at a discount because investors avoid these bonds.B.The bond is trading at a discount because investors​ don’t like the bond.C.The bond can be purchased for a​ discount, which gives it an​ “extra return”;​ hence, the yield exceeds the coupon.D.Because the value of the bond is​ discounted, the return on the bond is reduced and the yield exceeds the coupon. C.The bond can be purchased for a​ discount, which gives it an​ “extra return”;​ hence, the yield exceeds the coupon.
Why does the expected return of a corporate bond not equal its yield to​ maturity?A.The expected return is what is​ expected, while the yield is what you actually get.Your answer is not correct.B.The expected return is greater than the yield because the IRR of the investment in the bond exceeds the yield.C.The expected return of a bond with risk is less than the​ bond’s yield to maturity because the yield is calculated using the promised cash​ flows, which are not necessarily the actual or expected cash flows. D.The expected return is the actual​ return, but the IRR of the investment opportunity is not the yield. C.The expected return of a bond with risk is less than the​ bond’s yield to maturity because the yield is calculated using the promised cash​ flows, which are not necessarily the actual or expected cash flows.
Consider two investment​ projects, which both require an upfront investment of $11 ​million, and both of which pay a constant positive amount each year for the next 10 years. Under what conditions can you rank these projects by comparing their​ IRRs?A. There are no conditions under which you can use the IRR to rank projects.B.Ranking by IRR will work in this case so long as the projects have the same risk.C.Ranking by IRR will work in this case so long as the​ projects’ cash flows do not increase from year to year.D.Ranking by IRR will work in this case so long as the​ projects’ cash flows do not decrease from year to year. B.Ranking by IRR will work in this case so long as the projects have the same risk.

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