Financial Management

676 Words Dec 16th, 2011 3 Pages
FNCE 451 DDavis – Homework 4a – Review Questions
1. A 6-year Circular File bond pays interest of $82 annually and sells for $920 . What are its coupon rate, current yield, and yield to maturity? a. Coupon rate b. Current yield c. Yield to maturity _____________ %. ____________ %. ___________ %.

2: An example of a firm's financing decision would be: A. acquisition of a competitive firm. B. how much to pay for a specific asset. C. the issuance of ten-year versus twenty-year bonds. D. whether or not to increase the price of its products.

3. When corporations need to raise funds through stock issues, they rely upon the: A. primary market. B. secondary market. C. over-the-counter market. D. centralized NASDAQ exchange. 4. Which of the
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B. It is a cumulative number over a long period of time. C. It shows the profitability of a firm after deducting a calculation of a charge for cost of the capital. D. All of these are correct.

10. Which of the following bonds would be considered to be of investment-grade? A. A C rated bond. B. A B rated bond. C. A Ba rated bond. D. A Baa rated bond.

11. What is the relationship between an effective annual (compounded) rate (EAR) and the annual percentage rate (APR) for a loan requiring monthly payments? A. The APR is lower than the annually compounded rate. B. The APR is higher than the annually compounded rate. C. The APR equals the annually compounded rate. D. The answer depends on the interest rate.

12. Which of the following characteristics applies to the amortization of a loan such as a home mortgage? (Amortization = principal payments) A. The amortization decreases with each payment. B. The amortization increases with each payment. C. The amortization is constant throughout the loan. D. The amortization fluctuates monthly with changes in interest rates

13. Other things being equal, the more frequent the compounding period, the: A. higher the APR. B. lower the APR. C. higher the effective annual interest rate. D. lower the effective annual interest rate

14. What happens when a bond's expected cash flows are discounted at a rate lower than the bond's coupon rate? A. The price of the bond increases. B. The coupon rate of the bond

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