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Finance Flashcards

chapter 5 finance

Travis is buying a car and will finance it with a loan which requires monthly payments of $265 for the next 4 years. His car payments can be described by which one of the following terms?a. perpetuity b. annuity c. consold. lump sume. factor b
Janis just won a scholarship that will pay her $500 a month, starting today, and continuing for the next 48 months. Which one of the following terms best describes these scholarship payments?a. ordinary annuity b. annuity due c. consol d. ordinary perpetuity e. perpetuity due b
The Jones brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely. These annual scholarships can best be described by which one of the following terms?a. ordinary annuity b. annuity due c. amortized payment d. perpetuity e. continuation d
A perpetuity in Canada is frequently referred to as which one of the following? a. consul b. infinity c. forever cash d. Dowrye. forevermore a
The stated interest rate is the interest rate expressed: a. as if it were compounded one time per yearb. as the quoted rate compounded by 12 period per year c. in terms of the rate charged per dayd. in terms of the interest payment made each period e. in terms of an effective rate d
Anna pays 1.5 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded only annually, the rate would be referred to as the: a. annual percentage rateb. compounded ratec. quoted rated. stated ratee. effective annual rate e
Lee pays one percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the: a. annual percentage rateb. compounded ratec. effective annual rated. perpetual ratee. simple rate a
Which one of the following will decrease the present value of an annuity?a. increase in the annuity’s future value b. increase in the payment amount c. increase in the time period d. decrease in the discount ratee. discount in the annuity payment e
Christie is buying a new car today and is paying $500 cash down payment. She will finance the balance at 7.25 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? a. the present value of the car is equal to $500 + (36x$450)b. the $500 is the present value of the purchase c. the car loan is an annuity due d. to compare the initial loan amount, you must use a monthly interest ratee. the future value of the loan is equal to 36 x $450 d
Which one of the following statements is true concerning annuities?a. All else equal, an ordinary annuity is more valuable than an annuity due b. All else equal, a decrease in the number of payments increases the future value of an annuity due c. An annuity with payment at the beginning of each period is called an ordinary annuity d. All else qual, an increase in the discount rate decreases the present value and increases the future value of an annuity e. All else equal, an increase in the number of annuity payments decreases the present value and increases the future value of an annuity d
Which one of the following is an example of perpetuity?a. trust income of $1,200 a year foreverb. retirement pay of $2,200 a month for 20 years c. lottery winnings of $1000 a month for life d. car payment of $260 a month for 60 months e. apartment rent payment of $800 a month for one year a
Which one of the following can be classified as an annuity but not as a perpetuity? a. increasing monthly payments foreverb. increasing quarterly payments for 6 yearsc. unequal payments each year for 9 years d. equal annual payments for life e. equal weekly payments forever d
Which one of the following statements concerning annuities is correct? a. the present value of an annuity is equal to the cash flow amount divided by the discount rate b. the annuity due has payments that occur at the beginning of each time period c. the future value of an annuity decreases as the interest rate increasesd. if unspecified, you should assume an annuity is an annuity due e. an annuity is an unending stream of equal payments occurring at equal intervals of time b
Which one of the following qualifies as an annuity?a. weekly grocery billb. clothing purchasesc. car repairs d. auto loan payments e. medical bills d
Which one of the following characteristics apply to a perpetuity? I. constant cash flow dollar amountII. Unequal cash flow dollar amount III. Limited time period IV. Infinite time period a. I and III only b. I and IV only c. II and III only d. II and IV only e. I plus either III or IV b
Which one of the following will increase the present value of an annuity, all else held constant? I. Increase in the number of payments II. Increase in the interest rateIII. Decrease in the interest rateIV. Decrease in the payment amount a. I and II only b. I and III only c. II and IV only d. I, II, and IV only e. I, III, and IV only b
You are comparing 2 annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? a. The present value of A is equal to present value of B b. B will pay one more payment than A will c. The future value of A is greater than the future value of Bd. B has not a higher present value and a higher future value than A e. A has a higher future value but a lower present value than B d
Which one the following features distinguishes an ordinary annuity from an annuity due?a. number of equal paymentsb. amount of each paymentc. frequency of the payments d. annuity interest ratee. timing of the annuity payments e
Which one of the following is an ordinary annuity, but not a perpetuity? a. $75 paid at the beginning of each month period for 50 yearsb. $15 paid at the end of each monthly period for infinite period of time c. $40 paid quarterly for five years, starting todayd. $50 paid every year for ten years, starting today e. $25 paid weekly for one year, starting one week from today e
Which one of the following can not be computed?a. FV of an ordinary annuity b. FV of a perpetuity c. PV of a perpetuity d. PV of an annuity due e. PV of an ordinary annuity b
You are comparing three investments, all of which pay $100 a month and have an 8 percent interest rate. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which one of the following statements is correct given these three investment options? a. To be the perpetuity, the payments must occur on the first day of each monthly period b. the ordinary annuity would be more valuable than the annuity due if both had a life of 10 yearsc. the PV of the perpetuity has to be higher than the present value of either the ordinary annuity or the annuity due d. the FV of all three investments must be equal e. the PV of all three investments must be equal c
Which one the following has the highest effective annual rate?a. 6 percent compounded annually b. 6 percent compounded semi annually c. 6 percent compounded quarterly d. 6 percent compounded monthly e. all the other answers have the same effective annual rate d
When comparing savings accounts, you should select the account that has the: a. lowest annual percentage rateb. highest annual percent ratec. highest stated rated. lowest effective annual ratee. highest effective annual rate e
A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account: a. will be less than 12.9 percentb. can either be less than or equal to 12.9 percent c. is 12.9 percent d. can either be greater than or equal to 12.9 percent e. will be greater than 12.9 percent e
Which one of the following statements is correct? a. The APR is equal to the EAR for a loan that charges interest monthly b. the EAR is always greater than the APR c. the APR on a monthly loan is equal to (1 + monthly interest rate)^12 -1 d. the APR is the best measure of the actual rate you are paying on a loan e. The EAR, rather than the APR, should be used to compare both investment and loan options e
A loan has an APR of 8.5 percent. Given this, the loan must:a. have a one year termb. have a 0 percent interest ratec. charge interest annually d. must be an interest only loan e. require the accrued interest be paid in full with each monthly payment c
Scott borrowed $2,500 today. The loan agreement requires him to repay $2,685 in one lump sum payment one year from now. This type is referred to as a(n):a. interest only loanb. pure discount loanc. quoted rate loand. compound interest loane. amortized loan b
Cindy is taking out a loan today. The cash amount that she will receive today is equal to the PV of the lump sum payment which she will be required to pay 2 years from today. Which type of loan is this?a. principal only b. amortizedc. interest onlyd. compounde. pure discount e
Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan term is 6 years. Since he borrowed the money, Travis has been making annual payments of $700 to the bank. Which type of loan does he have?a. interest only b. pure discount c. compound d. amortized e. complex a
Letitia borrowed $6,000 from her bank 2 years ago. The loan term is 4 years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have? a. amortized b. blended discountc. interest only d. pure discounte. complex a
Bill just financed a used car through his credit union. His loan requires payment of $275 a month for 5 years. Assuming that all payment are paid timely, his last payment will pay off the loan in full. What type of loan does Bill have?a. amortized b. complexc. pure discount d. lump sume. interest only a
You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of 3 years. What type of loan did you obtain?a. interest only b. amortizedc. perpetuald. pure discounte. lump sum a
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Finance Flashcards

Personal Finance Midterm 2

It is not a good idea to use credit to live beyond one’s means.
All of the following are useful ways to build a strong credit rating except Apply for a long-term loan and occasionally be late with a payment.
If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed $300.
With open account credit, one can often avoid interest charges if the account balance is paid in full every month.
Ann Marie accumulated a large balance on her credit card while in college. She is trying to get it paidoff as quickly as possible and wants to roll the balance onto a new credit card. She now uses a credit cardonly for emergencies. What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card? low APR.
Interest rates on ____ are typically lower than on any other form of consumer credit. home equity lines of credit
Persons with very poor credit ratings can still get ____ credit cards secured
Theresa is a bit of a spendthrift. She has trouble saying no when it comes to buying things. Which of the following cards would keep her out of debt? debitrebate
The ____ is really a second mortgage on your home. home equity line of credit
The quality of your credit rating is maintained by meeting credit obligations as contracts require.
All of the following are key items lenders look at in granting credit except religious affiliations
A credit card can provide an interest-free loan if you pay the entire balance on or before the due date.
Anna uses her credit card regularly, but she pays the total balance monthly. Anna should look for acredit account with no annual feelong grace period
A consumer loan probably would not be used to buy back-to-school clothes.
Regarding student loans, which of the following is not true? There is no limit on how much can be borrowed with each loan.
If your installment loan has a variable interest rate, you cannot accurately predict the total interest you will pay on the loan.
Credit unions lend money to qualified people who are members.
Besides the finance charge, you should also consider ____ when you shop for a consumer loan. loan maturitytotal cost of the loancollateral requirementsprepayment penalties
A single-payment loan usually matures in one year or less
The annual percentage rate (APR) on a single-payment loan for $1,000 at a simple interest rate of12% is 12%.
Sometimes it may be better to use savings rather than credit to make a purchase. This would be recommended when the cost of borrowing is greater than the interest earned on the savings.
The outstanding balance on a $10,000 loan to be repaid in 24 monthly installments at an annualinterest rate of 12% after Month One is (monthly payment is $470.73): $9,629.27
Jackie pays $20 every time she visits her doctor. She is covered by a(n) HMO.IPA.PPO.
Medicare provides health care coverage to persons age ____ or those who are ____. 65 and over; collecting disability under Social Security
Gabe is 58 years old and has been dependent on a cane for a couple of years. Gabe fears that he mayneed long-term care services some day in the future. His net worth is $400,000 and he receives $50,000per year in a pension. He considers himself to be in excellent health and has never had a serious healthscare like a heart attack, stroke, or cancer. He eats lots of bran and exercises regularly. Which of thefollowing policies would you recommend to Gabe? Gabe should buy a long-term care policy with a long elimination period, lifetime benefits, anda COLA.
Ben’s health coverage charges a low ($15) deductible each time he visits the doctor or hospital. Otherthan the low per-service deductible, there is very little cost sharing. However, Ben must go to the healthcare providers listed by the provider of the health coverage. If he goes to a provider that is not on the list,there is very little coverage. Which of the following types of entity most likely provides Ben’s healthcoverage? HMO
Suppose a person has a health insurance policy with a $500 calendar-year deductible, a $2,000 out-of-pocketcap, and an 80% coinsurance provision. If this person suffers a $600 covered loss, how much willthe insurance company pay? (Assume no previous losses have occurred.) $80
Nick has a comprehensive health care policy with a $250 per-calendar-year deductible, an 80% coinsurance provision, and a $1,000 copayment cap per calendar year. In January, Nick had a $600 claim for which the insurance company paid $280. Nick experiences another unrelated claim in October resulting in total bills of $5,000. How much will Nick have to pay for the second claim? $930
Which of the following best describes a “pre-existing condition”? A physical or mental problem you had at the time you bought the policy
The insurance designed to help with nursing home or in-home care due to chronic illness is called long-term care insurance.
Disability income insurance provides benefits that are designed to substitute for lost income.
Bob and Barbara Castle are each 39 years old and have sought your advice with regard to theirfinancial affairs. Bob is a school administrator making $75,000 per year and Barbara is not employedoutside of the home. The Castles’ net worth is approximately $190,000. They have three kids, ages 6, 10, and 14. You have determined that the Castles currently have adequate life, health, auto, andhomeowner’s insurance. Which of the following forms of insurance is likely to fulfill their highest priorityremaining risk-management need? disability income insurance
The Affordable Care Act requires insurance companies to set premiums based on all of the following except gender.
A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off. True
Always paying cash is helpful in establishing a high level of creditworthiness. False
The key to creditworthiness is to keep your debt safety ratio as high as possible. False
Secured credit cards require that the cardholder put up collateral in order to get the card. True
The more credit cards one has, the better one’s credit score. False
Families who have a source of income and who want to retain their assets above the protected amount would select Chapter 13 rather than Chapter 7 bankruptcy. True
The student loans with the lowest rates of interest and the best loan terms are the PLUS loans False
Variable-rate loans are desirable if interest rates are expected to fall in the future. True
When comparing two installment loans with the same principal and APR, the loan with the longer maturity will have the lower monthly payment and the higher total costs. True
Simple interest on an installment loan is calculated as Amount of Loan × Interest Rate × Term of Loan. True
You have a better chance of choosing your own doctor with a PPO than with an HMO. True
Health insurance policies automatically cover all family members. False
Long-term care insurance provides protection against the cost of extended hospital stays. False
Under the Affordable Care Act (ACA), family health care insurers must allow parents to retain their children on their health plans up to age 28. False
Medicare and Medicaid are hospital and physicians coverage, respectively. False
As an Health Maintenance Organization (HMO) member, you may have co-payments but no deductibles. True
Under the Affordable Care Act (ACA), all Americans are required to have or buy health insurance or pay a penalty True
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Finance Flashcards

Finance exam 1

Which one of the following questions is a working capital management decision? How much inventory should be on hand for immediate sale?
Which one of the following terms is defined as a mixture of a firm’s debt and equity financing Capital Structure
The decision to issue additional shares of stock is an example of: a capital structure decision
Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm’s debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm’s profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt? Limited Partnership
A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a: limited partner
Corporate Dividends are: taxable income of the recipient even though that income was previously taxed.
A business created as a distinct legal entity and treated as a legal “person” is called a(n): corporation
Which one of the following is a primary market transaction? Sale of a new share of stock to an individual investor
Which one of the following actions by a financial manager is most apt to create an agency problem? Increasing current profits when doing so lowers the value of the company’s equity
Which one of the following is an agency cost? Hiring outside accountants to audit the company’s financial statements
Noncash items refer to: expenses that do not directly affect cash flows.
The _____ tax rate is equal to total taxes divided by total taxable income. average
The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. marginal
Which one of the following accounts is the most liquid? Accounts Receivable
A positive cash flow to stockholders indicates which one of the following with certainty? The dividends paid exceeded the net new equity raised.
The cash flow related to interest payments less any net new borrowing is called the: cash flow to creditors.
Cash flow to stockholders is defined as: dividend payments less net new equity raised.
Which one of the following is an expense for accounting purposes but is not an operating cash flow for financial purposes? Interest Expense
RJ’s has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam’s has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ’s must be doing which one of the following? Utilizing its total assets more efficiently than Sam’s
Ratios that measure a firm’s liquidity are known as _____ ratios. short-term solvency
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios. profitability
If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm: has an equity multiplier of 1.0.
Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct? Nan will have more money than Neal at any age.
Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will: increase.
Renee invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning? Simple interest
You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.) Option B has a higher present value at Time 0.
Which one of the following statements related to annuities and perpetuities is correct? A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal.
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Finance Flashcards

Finance Test 3

Activities of a firm which require the spending of cash are known as: uses of cash
The sources and uses of cash over a stated period of time are reflected on the: statement of cash flows
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as percentage of sales
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a common point in time? common-base year statement
Relationships determined from a firm’s financial information and used for comparison purposes are known as financial ratios
The formula which breaks down the return on equity into three component parts is referred to as which one of the following? Du Pont identity
The U.S. government coding system that classifies a firm by the nature of its business operations is known as the Standard Industrial Classification code
Which one of the following is a source of cash? A. increase in accounts receivableB. decrease in notes payableC. decrease in common stockD. increase in accounts payableE. increase in inventory increase in accounts payable(source of cash is an increase in liability/ equity or decrease in asset)
Which one of the following is a use of cash? A. increase in notes payableB. decrease in inventoryC. increase in long-term debtD. decrease in accounts receivablesE. decrease in common stock decrease in common stock(use of cash is a decrease in liability/equity or increase in an asset)
Which one of the following is a source of cash? A. repurchase of common stockB. acquisition of debtC. purchase of inventoryD. payment to a supplierE. granting credit to a customer acquisition of debt(source of cash is an increase in liability/ equity or decrease in asset)
Which one of the following is a source of cash? A. increase in accounts receivableB. decrease in common stockC. decrease in long-term debtD. decrease in accounts payableE. decrease in inventory decrease in inventory(source of cash is an increase in liability/ equity or decrease in asset)
On the Statement of Cash Flows, which of the following are considered financing activities? increase in long-term debt and dividends paid
On the Statement of Cash Flows, which of the following are considered operating activities? costs of goods sold, decrease in accounts payable, interest paid
According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities. increase; operating
According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities. decrease; operating
On a common-size balance sheet all accounts are expressed as a percentage of: total assets for the current year
On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following? base-year accounts receivables
A firm uses 2008 as the base year for its financial statements. The common-size, base-year statement for 2009 has an inventory value of 1.08. This is interpreted to mean that the 2009 inventory is equal to 108 percent of which one of the following? 2008 inventory expressed as a percent of 2008 total assets
Which of the following ratios are measures of a firm’s liquidity? interval measure, quick ratio
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Finance Flashcards

Finance Insurance

Under which circumstance might you receive a tax refund from the IRS? When your total of previous payments and applicable credits is more than the tax you owe.
Tax that you pay when making a profit from selling a house is an example of: Capital Gains Tax
The amount you owe in state income tax is based on: your yearly earnings
You have an insurance policy with a $300 premium and a $500 deductible. How much should you expect to pay the insurance company each month for coverage? $300
Which of the following would likely be covered under homeowners insurance but NOT by renter’s insurance? A tree branch breaks your bedroom window during a storm.
If you cause a car accident, which type of insurance will require you to pay the least out of pocket? Low deductible plan
The person who receives financial protection from a life insurance plan is called a: Beneficiary
Which of the following are NOT deducted on a typical paystub: Sales Tax
On a pay stub, what is the difference between “Net Pay” and YTD Net Pay”? Net Pay is how much you’ve made during a pay period, YTD Net Pay is how you’ve made this year.
If you are in a car accident caused by someone else who also has insurance, which type of insurance plan will not require you to pay out of pocket costs? Either A or B
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Finance Flashcards

personal finance final exam

In a contract, each party has what? An obligation or responsibility
When you want to add coverage for something not included in an insurance policy, what would you add to your policy? A rider
Everyone has the same amount of risk. False
Negligence is typically thought of as a failure to take reasonable actions to prevent injury or damage. True
Contracts are really only used for business; most people do not have contracts for their personal finances. True
If someone dies without a will, who handles the distribution of the person’s estate? The state
Only individuals over the age of 60 need to create an estate plan. False
The power of attorney is a legal document that gives the person of your choice the authority to act on your behalf. True
What is NOT true about contracts? A contract can be enforced even if the agreement contains an illegal activity.
The specific protection that the insurer provides to the policy holder is known as which of the following? Coverage
A guardian does which of the following? Agrees to care for a person’s children in the event of the person’s death
If someone dies without a will, a situation known as intestate, the state will step in to handle the distribution of the estate, even if it is not what you may have wanted. True
Who agrees to pay for certain types of losses in exchange for payments on a policy? Insurer
With a contract, consideration is something of value offered by one party in exchange for something of value from the second party. True
Verbal contracts can never be legally enforced. False
The broad types of investments are known as which of the following? Asset classes Speculative investments High risk types Dividends Asset classes
Common stocks are considered to be lower risk than municipal bonds. False
Treasury bonds have what maturity date? 30 year
Preferred stocks share characteristics with which of the following? Common stocks and corporate bonds
Speculative investments are which of the following? High risk
What is a legal document that outlines all of the conditions of the bond? Bond indenture
What is true about investing? It is used to generate money.
Direct stock plans are only offered by brokerage firms. False
What is the process of earning interest on interest that you’ve already earned? Compounding
A bond indenture is which of the following? Legal document
Dividends are the periodic distribution of profits to investors. True
Real estate is a great investment for everyone, particularly since the money is more liquid than common stocks. False
Individuals have to choose whether to save or invest, since it is not recommended to do both. False
All investments carry the same amount of risk. False
A stock is a share of what? Ownership
One advantage of credit is that it can give you a “float” time between buying the product and when you need to pay for the product. True
Collateral is the net worth of your household. False
What type of card includes a computer chip with additional information on it? Smart card
Credit tends to cost individuals more than paying in cash. True
Individuals who do not pay off their credit card balances each month are known as which of the following? Borrowers
In regards to credit, what does capacity mean? Your perceived ability to repay your loans and debt.
What is true about debit cards? They are linked to a savings or checking account.
Smart cards are also known as gift cards. False
What is a reason why someone would use a secured credit card? To help overcome a bad credit history
What is a disadvantage of using credit? It can be tempting to overspend.
Consumer credit has very few advantages and is best avoided at all times. False
Before giving you a loan or credit, lending institutions may want to know more about you to help determine whether you are a good person to give a loan or credit to. True
If you are trying to establish credit history, what is a good place to start? Gasoline or department store credit card
Those who pay off their credit balances in full each month and avoid the finance and interest charges are known as convenience users. True
Credit unions tend to give credit only to whom? Members of the credit union.
What is an example of a liquid asset? Money in a savings account
What is a common mistake made in budgeting? Budgeting for financial goals or savings last
What is simply a spending plan that we create to help manage our money? Budget
Liquid assets are those that cannot be easily converted to cash. False
What is true about computer files of financial records? They should be backed up regularly.
A home file is the place where you should keep financial records that you may need to access regularly. True
What is the first step in creating a cash flow statement? Record your income
The first step in creating a cash flow statement is which of the following? Recording income
What is a reason for keeping organized financial records?Paying bills Filing taxes Measuring financial status All of the above All of the above
What is an assessment of what you own and what you owe? Personal balance statement
What budgeting option is best used only with limited resources and expenses? Mental budgeting
It is not important to keep financial records since they can all be found online. False
A budget variance is any difference between what was actually spent during the time period and the budget. True
What is an example of a long term liability? Mortgage
Personal financial statements are a good way of measuring our current finances and giving us information about our financial activities. True
In the United States, over 9 million are victims of identity theft each year. True
Weasel Words involve advertising all of the good things about a product while ignoring the negative aspects of the product. False
What advertising technique focuses on the positive and ignores any negative aspects in the product? Card Stacking
What might be a consideration in deciding where to buy something?The location of the store The price of the item you wish to buy Customer service All of the above All of the above
One of the first steps that you can take is to place a fraud alert on your credit reports from Equifax, Experian, and TransUnion. True
Experts recommend that you time your purchases to what, if possible? Sales
What is a partial refund of the purchase price of an item? Rebate
Experts recommend that you don’t wait for sales before buying an item, since the item is likely to rise in price in the time you wait. False
Fraud alerts and credit freezers are the same thing. False
If you believe that your identity has been stolen, you should close the accounts that have been compromised. True
What advertising technique involves the use of “positive words without actually really making any guarantee”? Weasel Words
What involves special devices that steal your credit card or debit card information when you use the card for a purchase? Skimming
What is when an identity thief calls or emails you pretending to be someone else in order to get your personal information? Phishing
If you receive a phone call and the caller asks for personal information, what should you do? Refuse to give the information and hang up
Credit freezes prevent anyone from viewing your credit report, essentially blocking the creation of new credit accounts in your name. True
personal financial statement form outlining an individual’s assets and liabilities, used when an individual is applying for credit
cash flow statement document used by businesses or individuals showing the money generated and used during a specific time. shows differences in income and spending.
financial record Formal documents representing the transactions of a business, individual or other organization. Financial records maintained by most businesses include a statement of retained earnings and cash flow, income statements and the company’s balance sheet and tax returns.
budgeting the process of creating a plan to spend your money. ex: recording your income and finding what you need to spend on necessities, how much you can spend on luxuries, and how much you will save for emergencies
phishing the activity of defrauding an online account holder of financial information by posing as a legitimate company. ex: the prince of nigeria, calling you and trying to solve your computer problems
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Finance Flashcards

Final for Finance Turner 11-14

Which of the following investors will potentially receive dividends on their investments?a) debt holdersb) stock holdersc) bond holdersd)derivative holderse) both b and d are correct b
An investor owns stock from seven different companies, two rental houses, and three government bonds. Together these assets are considered to be the investor’s _____.a) derivative holdingb) collectionc) portfoliod) asset classe) none of the above c
The ____ date is the date at which the bond issuer must repay the loan or borrowed funds.a) completionb) endingc) maturityd) premiume) none of the above c
Suppose that you purchased a machine several years ago for your company. You recently sold the machine for more than you paid. This is an example of a ___.a) capital carry-forwardb) non-taxable gainc) windfalld) capital gaine) none of the above d
The ___ is the stated amount on the face of a bond, which the firm is to repay at the maturity date.a) debt price b) historical valuec) relevant valued) par valuee) none of the above d
You are considered to be engaging in ____ when you purchase an asset whose value depends solely on supply and demand.a) investingb) optioningc) speculationd) hedginge) none of the above c
A security whose value is based solely on the value of other assets is called a ___ security.a) capital optionb) derivativec) hedgingd) alternative assete) none of the above b
When you purchase an asset that generates a return, it is generally considered to be ____. a) speculationb) a windfallc) an expected returnerd) an investmente) none of the above d
If you bought a 20-year bond issued by the government, with a par value of $1,000 and an interest rate of 8%. At maturity you will be returned the principal of ___.a) $80b) $1,600c) $500d) $1,000e) $800 d
As a young college graduate, your biggest investment ally is ______.a) tax-free investmentsb) timec) derivativesd) a windfalle) leverage b
You can make investments on a ____ basis, which means that not only does your investment grow free of taxes, but the money you invest isn’t taxed until you liquidate your investmenta) progressive taxb) asset management c) tax-deferredd) tax-eliminated c
Long term capital gains are taxed at ___ percent.a) 15b) 25c) 10d) 8e) 40 a
If you purchase some shares of stocka) you may earn coupon interestb) you will definitely earn coupon interestc) you may earn dividendsd) you will definitely earn dividends c
Jennifer has money invested in stocks. She earns a return on her investment, which is a portion of the company’s profits, called ____.a) a returnb) interestc) dividendsd) growthe) retained earnings c
What is advantage to being a “preferred” stock holder?a) preferred stock holders receive dividend payouts before common stock holders dob) preferred stock holders always get to vote for the board if directors of the companyc) preferred stock holders receive a better coupon interest rated) there are no advantages to being a preferred stock holdere) preferred stock holders never pay commissions on their stock trades a
Hern MacTavish only invests in lending investments. If his financial advisor gave him the list below, which might Hern invest in?a) saving accountsb) stocksc) income-producing real estated) bondse) both A and D e
Just as valuable as the tax break on capital gains income is the fact that you don’t have to claim it– therefore, you don’t pay taxes on the asset until you____.a) sell itb) Have an equal match in personal incomec) retired) file your next years’ taxes a
Latisha invested $1,000 in XYZ stock. Two years later she sold the stock for $1,200. During the time she owned the stock, she received a total of $80 in dividends. What was her total return on this investment?a) 8%b) 20%c) 23.33%d) 28% d
Tran purchased a house for a rental property for $100,000 five years ago. During the time owned this rental, his net rental income was a total of $4,000. He just sold the property for $120,000. What was his AVERAGE annual return on this investment?a) 4.0%b) 4.8%c) 20%d) 24% b
One should keep in mind that when it comes to tax advantages, _____ is/are better that ____.a) Tax-free investments; tax deferredb) ordinary income; capital gainsc) tax shelters; capital gainsd) capital gains; ordinary incomee) marginal rates; ordinary income d
Bruce Lee owns stocks, bonds, real estate, gold coins, T-Bills, and gemstones. He has a(n) ____.a) default-proof portfoliob) diverse portfolioc) equity portfoliod) risk adverse portfolioe) inflation-proof portfolio b
The risk that you will not be able to find a buyer at a fair market price, and will wind up having to sell for less than an asset’s worth is called ___ risk.a) interestb) liquidityc) calld) inflation b
Albert just purchased a $1,000, 5.4%, 10-year bond when he heard about his friend Charlie who just bought a $1,00, 8%, 10-year bond. What kind of risk did Albert just experience?a) marketb) financialc) interest rated) business c
Asset allocation has to do with how your money should be divided among which of the following?a) real estateb) stocksc) corporate bondsd) government bondse) all of the above e
Which of the following statements regarding risk in investing is most correct?a) It is most important to avoid risk during the early years, up to age 54.b) Trying to avoid risk is an exercise in futilityc) It is hard to achieve a positive return by avoiding risk all togetherd) avoiding risk is the best strategy to accumulate wealth c
Our study of efficient markets tells us all of the following about investing EXCEPTa) long-term investing is your best bet, not systemsb) go with the best investment advisor money can buyc) Do not try to time the market–stay with your pland) Focus on effective asset allocatione) Diversity and seek help if you don’t feel comfortable c
You have just purchased shares of stock from a stock broker. These shares were previously traded on the NYSE. This trade took place in the ____.a) secondary marketb) primary marketc) tertiary marketd) quaternary markete) none of the above a
You just concluded a stock purchase transaction via a computer hookup rather than in an organized exchange. This trade took place in the ____.a) NYSEb) AMEXc) primary marketd)over-the-counter markete) none of the above d
IBM went to a(n) ____ who served as a(n) ___ to sell an IPO in the primary markets.a) underwriter; investment brokerb) investment banker; underwriterc) investment broker; underwriterd) underwriter; investment bankere) investment banker; underacheiver b
A(n) ____ is a legal document that describes a securities issue and is made available to potential investors.a) offering contractb) tombstonec) prospectusd) disclosure agreemente) none of the above c
A(n) _____ advertisement provides a listing of the underwriting syndicate involved in a new offering.a) prospectusb) brokerage notificationc) underwriting notificationd) tombstonee) none of the above d
IBM is considering hiring an investment banker who will purchase and subsequently resell an issue of stock for them. This service is called____.a) churningb) stock brokeragec) full-service brokeraged) underwritinge) none of the above d
ABC Corporation is selling additional shares of common stock. These are new shares of stock, and have never been sold or traded previously. The selling of these shared would take place in the _____ market.a) quaternaryb) secondaryc) primaryd) tertiarye) none of the above c
Securities that are less frequently traded, along with many new and high-tech stocks, are relegated to the a) NYSEb) OTC marketc) ADR marketd) AMEX b
Most of the bonds that are bought and sold are not transacted on the organized exchanges. They are bought and sold through bond dealers who do not sell many ____ bonds but do trade many ____ binds in the secondary market.a) high par value; corporateb) government; corporatec) corporate; firm-specific bondsd) government; low par valuee) corporate; government e
The two major organized stock exchanges in the United States are ___ and the____.a) NYSE; Pacificb) AMEX; Chicagoc) AMEX; Pacificd) NYSE; AMEXe) NSYE; Chicago d
You and your spouse have decided to incorporate bonds into your newly-formed retirement portfolio. You will most likely purchase them ____.a) with your broker acting as intermediaryb) directly from issuing institutionc) directly from a bond dealerd) with an underwriter acting as intermediary a
Patti DeVry has been trading stocks in the over-the-counter market. When she wants to sell her stocks she will specify the ____ price and when she wants to purchase stocks she will specify the ____ price.a) bid; minimumb) starting; minimumc) ask an offer; bidd) ask;minimume) bid; ask on offer c
Securities include both ____ and ____.A) bonds; mutual fundsb) real estate; stocksc) stocks; bondsd) stocks; mutual fundse) bonds; money market funds c
Investors who trade with a very short time horizon, generally holding onto stocks for only a few hours, are called _____.a) hedge tradersb) movement tradersc) deep discount tradersd) day traderse) none of the above d
You have decided to borrow stock from your broker, sell it in the market, and then (you hope) replace the borrowed stocks when the price drops in the future. This is an example ofa) selling shortb) borrowed sellingc) reverse hedgingd) IOU tradinge) none of the above a
A _____ is an order to sell a security if the price drops below a specified level or to buy if the price climbs above a specified level.a) fill-or-kill orderb) market orderc) GTC orderd) stop-loss ordere) none of the above d
A ____ is an order to buy or sell a set number of securities immediately at the best price available.a) prompt orderb) day orderc) limit orderd) market order e) none of the above d
a___ is a trading order that expires at the end of the trading day during which it was made.a) limit orderb) GTC orderc) market orderd) day ordere) fill-or-kill order d
A group of 100 shares of common stock is referred to as a(n) ____.a) odd lotb) square lotc) round lotd) even lote) none of the above c
You specify that your trade is to be made only at a certain price or better. You are placing a(n)a) stop orderb) limit orderc) open orderd) closed ordere) market order b
You have just purchased 10 shares of a stock selling at $50 per share, Since that time, the company was found to be in violation of several environmental laws and has several major lawsuits outstanding. Which of the following statements is most correct?a) You could lose up to your $500 investmentb) You cannot lose your investment based on the actions of the actions of the companyc) You could lose more than you $500 investmentD) By owning stock in the company, you have also technically violated the lawe) none of the above A
Which of the following statements is most correct regarding the general relationship between stocks and interest rates?a) As interest rates increase, stock prices should decreaseb) there is no relationship between interest rates and stock pricesc) Stock prices are negatively exponentially related to interest rate increasesd) As interest rates increase, stock prices should also increasee) none of the above A
______ are a company’s distributor of its profits in the form of cash or stock to its owners.a) shareholder divestmentsb) coupon interest paymentsc) equity paymentsd) dividendse) none of the above D
When a company buys back its own common stock it is engaging in a _____.a) stock repob) stock splitc) stock reissued) stock repurchasee) none of the above D
A ____ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.a) stock reissueb) stock repurchasec) stock splitd) dividend reinvestmente) none of the above C
A(n) ______ is a legal agreement signed by a stockholder allowing someone else to vote on his or her behalf at the corporation’s annual meeting.a) proxyb) voting contractc) agency contractd) contingency contracte) none of the above A
The ____ is the date on which the board of directors announces the amount of the dividend.a) declaration dateb) dividend datec) ex-dividend dated) announcement datee) maturity date A
You purchased 100 shares of Quantex at $150 per share for a total investment of $15,000. After your purchase the stock had a 3 for 1 split. How many shares do you now own and how much is your original investment now worth?a) 100 shares and $150 b) 300 shares and $15,000c) 300 shares and $45,000d) 100 shares and $45,000 B
You are really keen on stocks. However, you do not like stocks with regard to ____. This means that if a company you have invested in goes bankrupt, the creditors are paid first and you will be out of luck.a) limited liabilityb) voting rightsc) claims on assetsd)claim on incomee) claims on dividends C
Common stock holders are entitled to elect the company’s board of directors. Usually one share of stock is equal to ____ vote(s).a) 100b) onec) 1,000d) two b
The dividend yield in a share of common stock is_______.a) available at most large companiesb) the taxes you pay on the reinvested dividendsc) the amount of annual dividends divided by the market price of the stockd) all of the abovee) Only A and B c
The book value of a company is calculated by ____.a) adding the price per share to the dividends paidb) subtracting the value of all the form’s liabilities from the value of its assetsc) subtracting its price per share from the dividends paidd) subtracting the value of all the firm’s assets from the value of its liabilities b
As a shareholder in the Titanic Shipping, Inc, James Blue is one of the many actual owners. In case of the bankruptcy of the corporation, his liability would be limited to______.a) the amount of his investmentb) what is left after selling the stock and subtracting the debtc) nothing at alld) his ownership percentage of the actual loss a
Figure 13.1 in your textbook compares the returns on various investments over the period 1951-2010. Which of the following is shown to exceed the inflation rate by the widest margin?a) treasury billsb) government bondsc) mutual fundsd) common stocks d
A stock market characterized by increasing is termed a(n) ____ market.a) animalb) bearc) bulld) none of the above c
A stock market characterized by _____ prices is termed a bear market.a) steadyb) risingc) fallingd) none of the above c
Jessica wanted to gauge stock performance in general. She found a useful tool that measured the stock prices of 30 large industrial firms, called the ____.a) Moody’s Indexb) Value Line Surveyc) Standard and Poor’s Indexd) Dow Jones Industrial Averagee) none of the above d
When you got home after work you saw on the news that the S&P was down by 20 points. Which of the following is true?a) All of your stocks’ markets prices must have declined by 20 pointsb) Some of your stocks’ market prices may have increasedc) Some of your stocks’ market prices may have decreasedd) Both B and C are correct d
If you purchase stock of big companies like Proctor & Gamble, General Electric, and Texaco you would be buying shared of ___ stocks.a) true-blueb) blue-tripc) mini-capsd) speculative b
Deborah recently purchased a stock that is considerably more risky than a typical stock. It has exhibited a high degree of earnings variability. This is an example of a(n) _____ stock.a) incomeb) blue-chipc) mid-capd) speculative d
Why might you consider investing in bonds?a) Bonds can be safe investment if held to maturityb) bonds produce steady incomec) bonds reduce risk through diversificationd) all of the above d
Bond issuers may do something very important for the bondholder that increases the probability the debt will be successfully paid off at maturity. The issuera) establishes a sinking fundb) has the bond deferredc) had the bond indenturedd) sets a fixed interest rate a
Any bond that is backed by the pledge of collateral is known as what type of bond?a) agencyb) sinkingc) securedd) collateralizede) recalled c
Bonds enjoy all but one of the following advantages. Which is it?a) When interest rates drop, bond prices riseb) Bonds may be called when interest rates dropc) bonds produce steady income d) they can be a safe investment if held to maturitye) They reduce risk through diversification b
You hold in your hands a legal document that provides the specific terms of the loan agreement, including a description of the bind, as well as the rights of the bondholder. You have a(n)_____.a) indentureb) bond signatoryc) agency contractd) signatory contracte) debenture a
State or municipal bonds that have interest and par vale paid for with funds from a designated project or specific tax are known as ____ bonds.a) general obligationb) Series EEc) life cycled) revenuee) none of the above d
The ___ is the face value of a bond, and the amount that is returned to the bondholder at maturity.a) par valueb) market valuec) return priced) dead pricee) none of the above a
Herman Melville never thought of a bond as being a ____ and that he would be ____ when securing one until he read bout it in his personal finance test.a) lien; borrowerb) loan; borrowerc) lien; lenderd) lien; debenturee) loan; lender e
An unsecured long-term bond is known as a(n) ____.a) abdentureb) bondenturec) debenturec) indenture c
The largest single player and payer in the bond market ____.a) are foreign firmsb) is the U.S. governmentc) is corporate Americad) are school and county governmentse) are municipal bond issuers b
If you were considering the purchase if a bind issued by a state, county, or city, you would be considering the purchase of a ___ bond.a) corporateb) municipal bondc) government hedged) statee) none of the above b
Treasury bonds are generally viewed as being risk-free, given the government’s ability to ___ and ___.a) print money; do volume businessb) tax people; do volume businessc) tax corporations; do volume businessd)tax; print more moneye) none of the above d
The corporate bond that you own is backed by the corporation’s Houston, Texas real estate holdings. If the company defaults, these holdings could be liquidated to repay the debt. This is an example of a ___ bond.a) creditb) liquidationc)debentured) mortgagee) none of the above d
Because there is no default or call risk associated with government bonds, they generally pay ___ rate of interest of interest than other bondsa) the sameb) a higherc) none of the above d) a lower d
Because junk bonds carry a much higher risk of default, they also carry an interest rate ___ percent above the AAA grade long-term bonds.a) 10-12b) 1-2c) 20-25d) 7-9e) 3-6 e
A real estate investment that is most similar to a mutual fund specializing in real estate investment is called a ____.a) property trustb) pass-through property bondc) real estate agency bondd) none of the above c
Which of the following bonds would be appropriate for a retired person seeking a stream of income during retirement?a) investment grade corporate bondb) US Treasuryc) Municipal bondd) all of the above are correct d
Which of the following starts off with the highest risk bond and ends with the lowest risk bond?a) Municipal, Corporate, Treasury, Junkb) Corporate, Junk, Municipal, Treasuryc) Junk, Corporate, Municipal, Treasuryd) Corporate, Junk, Treasury, Municipal c
The advantages of Treasury bonds includea) there is no defaultb) they can’t be called inc) most interest is free of state and local taces.d) all of the abovee) Only A and C d
The interest rate carried on agency bonds, such as FNMA and FHLB, is ___ the interest rate on Treasury bonds.a) higher thanb) usually the same asc) at most that ofd) lower thane) none of the above a
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Finance Flashcards

Finance2

Which of the following is not true when developing a time line? Cash outflows are designated with a positive number
People borrow money because they expect… their purchases to give them the satisfaction in the future that compensates them for the interest payments charged on them
A payment that your bank credits to your account in one year is known as a: Future Value
How are future values affected by changes in interest rates? The higher the interest rate, the largger the future value will be.
How are present values affected by changes in interest rates? The lower the interest rate, the larger the present value will be.
We call the process of earning interest on both the original deposit and on the earlier interest payments: compounding
Interest earned on the original deposit is called: simple interest
The process of figuring out how much an amount that you expect to receive in the future is worth today is called: discounting
The interest rate, i, which we use to calculate present value, is often referred to as the: discount rate
Who is credited with popularizing the Rule of 72? Albert Einstein
The Rule of 72 is a simple math approximation for: The number of years required to double an investment.
With regard to money deposited in a bank, future values are: larger than present values
Earnings just one percent more in interest rate every year results in much higher future values over time, and: time has the same effect on future values over time
A dollar paid (or received) in the future is: not worth as much as a dollar today
Because we compute interest rates using beginning-period value of an investment, investments that feature gains and losses may become asymmetric between gains and losses
When computing the rate of return from selling an investment, the number of years between the present and future cash flows is an important factor in determining the annual rate earned
When calculating the number of years needed to grow an investment to a specific amount of money: the higher the interest rate the shorter the time period needed to achieve the growth
Moving cash flows from one point in time to another requires us to use both present and future value equations
All TVM equations that you will encounter only require figuring out what is unknown in the situation and: solving for that one unknown factor
The longer the money can earn interest, the greater the compounding effect
When saving for future expenditures, we add the ______________ of contributions over time to see what the total will be worth at some point in time> Future value
When moving from the left to the right of a time line, we are using: compound interest to calculate future values
Level sets of frequent, consistent cash flows are called annuities
The length of time of the annuity is very important in accumulating wealth within an annuity. What other factor also has this effect? interest rate for compounding
In order to discount multiple as flows to the present, one would use the appropriate discount rate
Your credit rating and current economic conditions will determine the interest rate that a lender will offer
When interest rates are lower, borrowers can borrow more money
The present value of annuity payments made far into the future are worth very little today
While the future value will increase as computing frequency increases, the size of each increase in the future value: diminishes as compounding frequencies increase
Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value grows
The simple form of an annualized interest rate is called the annual percentage rate (APR). The effective annual rate (EAR) is a more accurate measure of the interest rate paid for monthly compounding.
You can more easily evaluate investment opportunities for both businesses and individual applications if you can compute the implied rate of return in a series of cash flows
People refinance their home mortgages when rates fall
Loan amortization schedules show both the principal balance and interest paid per year
When you take out a loan for a car or home mortgage, you will usually find monthly payments at today’s interest rates more relevant for your budget
When you get you credit card bill, it will offer a minimum payment, which usually only pays the accrued interest and a small amount of principal
When you get your credit card bill, if you make a payment larger than the minimum payment you will reduce the payoff time
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Finance Flashcards

Personal Finance: FIN 1100- Chapter 1

Being financially secure involves balancing what you earn with B) What you spend.
Which statement is true about managing personal finances? C) Financial difficulties can be a major cause of marital problems.
Personal financial planning can help you to E) All of the above.
Evaluating your financial health consists of E) All of the Above
The term that considers having money readily available when you need it is the concept of B) Liquidity
Suppose that you are a 21-year old college student. What stage of the financial life cycle are you currently in? A) Stage 1: wealth accumulation
Based on the Life Cycle of Financial Planning. When would be a good time to review and possibly adjust an effective financial plan? E) Both B and C are correct answers. B) When you get married C) When you have children
What is the main factor in determining your potential income level? A) Education and skills that you have attained.
According to a recent recruiting survey, the most common mistake made by job interviewees is B) talking too much.
According to a recent Rockefeller Foundation report, the ability to pay B) for retirement expenses.
The concept of diversification is illustrated by the old saying B) “Don’t put all your eggs in one basket.”
Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle that considers the value of compound interest is the D) time value of money
In 2008, the Bear Stearns Company collapsed could not be saved and was sold to JP Morgan Chase for $10 per share, a price far below its pre-crisis 52-week high of $133.20 per share. Prior to the collapse, many of the company’s employees had all of their retirement money invested only in Bear Stearns common stock. This was a very risky financial strategy for just such a reason: What if the company dissolves? What financial principle from Chapter 1 did they need to understand better? A) Risk and return go hand in hand.
Matthew bought a used car last month for $2,400. He just found out he needs a new transmission that will cost $2,400 to install. He is asking you for advice as to what he should do. What financial principle would you use to base your advice on? B) Mind games, financial personality, and your money
A solid understanding of personal finance will E) All of the Above.
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Finance Flashcards

Fundamentals of Business Finance Chapter 6

The appropriate measure for risk according to the capital asset pricing model is: beta.
Which of the following types of risk is diversifiable? Unsystematic, or company-unique risk.
Of the following different types of securities, which is typically considered most risky? Common stocks of small companies
SeeBreeze Incorporated has a beta of 1.0. If the expected return on the market is 15%, what is the expected return on SeeBreeze Incorporated’s stock? 15%
Portfolio risk is typically measured by ________ while the risk of a single investment is measured by ________. beta; standard deviation
The capital asset pricing model: provides a risk-return trade off in which risk is measured in terms of beta.
What is diversifying among different kinds of assets known as? Asset allocation
Investment A has an expected return of 15% per year, while investment B has an expected return of 12% per year. A rational investor will choose investment A if A and B are of equal risk.
Stock A has a beta of 1.2 and a standard deviation of returns of 18%. Stock B has a beta of 1.8 and a standard deviation of returns of 18%. If the market risk premium increases, then the required return on stock B will increase more than the required return on stock A.
Billings, Inc. common stock has a beta of 1.2. If the expected risk free return is 4% and the expected market risk premium is 9%, what is the expected return on Billing’s stock? 14.8%
The risk-free rate of interest is 4% and the market risk premium is 9%. Howard Corporation has a beta of 2.0, and last year generated a return of 16% with a standard deviation of returns of 27%. The required return on Howard Corporation stock is: 22%.
Assume that an investment is forecasted to produce the following returns: a 10% probability of a $1,400 return; a 50% probability of a $6,600 return; and a 40% probability of a $10,500 return. What is the expected amount of return this investment will produce? $7,640
Your stock portfolio has two stocks with the following proportions:Stock A – 20% of the investment; Beta for stock A = 1.4Stock B – 80% of the investment; Beta for stokc B = 0.9What is the beta of the portfolio? 1.00
Which of the following is the slope of the security market line? the market risk premium
Beginning with an investment in one company’s securities, as we add securities of other companies to our portfolio, which type of risk declines? Unsystematic risk
Which of the following measures the average relationship between a stock’s returns and the market’s returns? Beta coefficient
The beta of ABC Co. stock is the slope of: The characteristic line for a plot of ABC Co. returns against the returns of the market portfolio for the same period.
Collectibles Corp. has a beta of 2.5 and a standard deviation of returns of 20%. The return on the market portfolio is 15% and the risk free rate is 4%. What is the risk premium on the market? 11%
You purchased 1,000 shares of K.C Inc. common stock one year ago for $50 per share. You received a dividend of $2 per share today and decide to take your profits by selling at $54.50 per share. What is your holding period return? 13.0%
Assume that an investment is forecasted to produce the following returns: a 20% probability of a 12% return; a 50% probability of a 16% return; and a 30% probability of a 19% return. What is the standard deviation of return for this investment? 2.43%
You have a portfolio of two stocks with the following investment proportions and betas:Stock A = 30% of the portfolio investment; Beta of stock A = 1.8Stock B = 70% of the portfolio investment; Beta of stock B = 1.1What is the portfolio beta? 1.31