HFT 4464 FInance

People who are “risk averse” usually don’t invest their money in anything. False
The correlation coefficient ranges from -1.0 to +1.0 True
If two assets are perfectly positively correlated, we can put them together into a portfolio and completely eliminate risk False
The Capital Asset Pricing Model is used to predict either the required or the expected return on an investment. True
The best definition of “risk” is uncertainty about an outcome
If two assets have returns that move together perfectly, their correlation coefficient is +1.0
How can individual investors obtain the benefits of diversification? They can build a portfolio of 25-50 assets
Beta is a measure of systematic risk
If a stock has a beta greater than 1.0, then its expected return greater than the market portfolio
In the Wall Street Warriors video, multiple people (Fund Manager, Portfolio Manager) emphasized this short word regarding important requirement to work as a trader (hedge fund, day trader, short seller) at Wall Street. Which is correct? Capital
A loan amortization schedule shows how much of the principal balance is paid off with each loan payment True
An infinite annuity is called a perpetuity. True
You just turned 25 today. By your 60th birthday you would like to have $1,000,000 saved. You plan to invest equal annual payments beginning with your 26th birthday and ending on your 60th birthday. If all invested funds earn 8% annually, how much do you need to invest each year to have exactly $1,000,000 by your 60th birthday? (You absolutely need HP10BII to calculate this. I truly wish you to be one of a few who can calculate these questions so that you have successful career and better life) $6,304.11
What is the future value of $1,500 invested at a 5% rate for 7 years? $2,110.65
Dividends reduce retained earnings when declared
Which of the following is considered to have the lowest risk? a treasury bill from the us government
According to a video about a financial analyst, Ms. Meredith Whitney, with which bank’s financial statement she identified a problem? citibank
A measure of uncertainty in stock returns is Standard Deviation
35) You own the following portfolio of stocks that have achieved the following returns. [Stock A weight=25%, expected return=8%], [Stock B weight=65%, expected return=4%], [Stock C weight=10%, expected return=5%] The weighted average return is ` 5.1
Which of the following is a “snapshot” of the hospitality operation? Balance Sheet
Which of the following is a limitation of ratio analysis? Ratios are more meaningful when compared to some standard of performance.
The best definition of “risk” is uncertainty about an outcome
The best definition of risk averse is only taking small risks
Beta is a measure of systematic risk
Given a risk-free rate of return of 4 percent, a beta of 1.5, and a return on the market portfolio of 12 percent, what is the required rate of return using the CAPM? 16%
Suppose you are borrowing money at a 5.0 % annual nominal interest rate. To pay as little as possible, which one of the following compounding periods should you prefer? annually
Into which two parts is a firm’s earnings divided? dividends and addition to retained earnings
Given a risk-free rate of return of 5 percent, a beta of 2.0, and a return on the market portfolio of 9.8 percent, what is the required rate of return using the CAPM? 14.6%
People invest to increase future consumption
Which concept CAPM explains? the relationship between risk and return
The consequences to a corporation for failure to pay preferred dividends are more serious than for failure to pay interest on a bond False
Interest on a bond is a tax-deductible cost for the paying corporation. True
Bonds and common stock are generally both classified as fixed income securities. False
Common stock has seniority relative to preferred stock False
Which of the following is NOT considered a fixed income security? commons stock
Which of the following is NOT a restrictive covenant? call feature
Which one of the following securities is collateralized (secured) by specific assets? mortgage bond
The term “preferred” in preferred stock refers to which of the following? Preferred stock has a claim on the firm’s assets prior to common stock.
What is the value of a $1,000 par value zero-coupon bond maturing in 10 years to an investor requiring a 7% rate of return? 508.35
In the case of corporate bankruptcy, common stock’s residual claim becomes especially valuable false
Investors view common stock as a riskier investment than bonds or preferred stock. true
Valuing common stock is less difficult and more precise than valuing bonds. false
Everything else being the same, the higher a firm’s earnings growth, the lower the value of its common stock. false
Everything else being the same, the greater an investor’s required rate of return, what is true of the value of common stock? it is worth less
into which two parts is a firm’s earnings divided? dividends and additions to retained earning
Why do investors require a higher expected rate of return on common stock than on bonds? common stock is a riskier investment than bonds
Why is common stock financing lower risk to the firm than financing with bonds? The lack of a fixed dividend provides the firm greater flexibility versus the interest cost of a bond.
A firm’s weighted average cost of capital is the average cost of the various short-term sources of financing employed by the firm. false
The cost of capital raised by the issuance of bonds is typically lower than the cost of capital raised from the issuance of preferred stock or common stock. true
If a project is to be 100% financed with debt, then the cost of debt—not the weighted average cost of capital—should be used to evaluate the project. false
Which of the following is typically NOT treated as one of the components of capital in cost of capital schedule calculations? short term debt
Why is external common equity capital more expensive then internal common equity capital? because the cost of external must take into account flotation costs, internal does not.
represents the long-term or permanent sources of the firm’s financing. capital structure
Which answer appropriately ranks the securities according to seniority risk, from highest risk first to lowest risk last? common stock, preferred stock, bonds
Upon graduation, instead of buying a new BMW with large wheel option for $35,000, you cleverly decided to refuse to add a larger wheel option for $2,000, bought it for $33,000, and decided to put $2,000 with Shady Uranium Development, which claims to give you 15% fixed annual return that compounds MONTHLY. You were not sure about their shady look, but you invested, thinking that BMW larger wheel value would be zero after 15 years anyway. as the car’s whole value would come close to zero. You could afford to lose that whole money of $2,000 as you see it as high-risk, high-return deal. You forgot about it soon after.How much will you receive back from Shady Uranium Development after 30 years? $175,081
Your university is considering what to do with the current football stadium. They plan to invest to upgrade the current football stadium or invest to build a new one closer to campus. What kind of projects are these? mutually exclusive projects
What impact will an increase in depreciation have upon a firm? decrease profit increase cash flow
What is net working capital? current assets minus current liabilities
The discounted payback method does not take into account the time value of money. false
A project’s payback period is the amount of time required for the project’s net cash flows to recover or pay back the net investment. true
If a project’s internal rate of return is greater (less) than the required rate of return, the project is generally acceptable (unacceptable). true
You checked in a guest who looks familar somehow. After you started to chat with the gentleman, you found out that his address is in Seattle, WA. And you discovered that his name is the same name as the gentleman who made Mr. Bill Gates become even richer.He quietly told you that he has a very trusted assistant who would perform at least just as good.The assistant says that if you trust her with $1,000 today, the money would be larger at your retirement after 40 years, but you should be able to calculate how much $1,000 would be after 40 years, at 11.8% compounding annually as a condition of her managing your money. So how much it would be? (You must have HP10BII and use it to solve this). $86,630 ONLY IF COMPOUNDED ANNUALLY!!!!!!!!
You checked in a guest who looks familar somehow. After you started to chat with the gentleman, you found out that his address is in Seattle, WA. And you discovered that his name is the same name as the gentleman who make Mr. Bill Gates become even richer.He quietly told you that he has a very trusted assistant who would perform at least just as good.The assistant says that if you trust her with $1,000 today, the money would be larger, but you should be able to calculate how much $1,000 would be at your retirement after 40 years at 11.8% compounding MONTHLY as a condition of her managing your money. So how much it would be? (You must have HP10BII and use it to solve this). 109,611 ONLY IF COMPOUNED MONTHLY!!!!!!!!!!
An optimal capital structure minimizes a firm’s cost of capital true
A firm’s use of excessive debt financing creates more risk to owners and thus increases the cost of equity. true
Which of the following is true at a firm’s optimal capital structure? the firms cost of capital is minimized
What is a firm’s capital structure? a firm’s proportion of long-term financing provided by debt, preferred stock, and common equity
What is a firm doing if it is using financial leverage? It is using debt or preferred stock as part of its capital structure.
Which of the following is most likely to cause a firm to use more financial leverage? the current owners concern for maintaining control of a healthy firm
You decided to set aside $200 every month and add them into an global growth mutual fund with expected growth rate of 8% per year until your retirement after 40 years (480 months). So, just $200 every month for 40 years at 8% annual rate, compounding MONTHLY. (It sounds like you may afford to do this fron now!) How much it would be after 40 years? $698,201
You manage it by yourself without any help of outsiders. Good news is you do not have to pay any fees. manage by yourself
You manage the property by yourself but you receive support from outside for your sales. Other hotels or organizations introduces their clients to you under this model. referral agreement
You still manage the hotel by yourself, but you receive operational support as well as introduction of customers from the head office. You have to meet the head office’s specification about how to manage your hotel, physical conditions etc. You have to pay a fee for their advices franchise agreement
You do NOT manage the hotel, as senior management team are sent from the head office. But you are still responsible for employees’ payroll. You have to pay a fee for the professional management of your hotel. management agreement (contract)
You are NOT managing the hotel and you do NOT own the employees. You just receive the rent from the tenant, which is the hotel company as your lessee. lease agreement

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