Reference no: EM13714948

Question 1.1. The longer we have to wait for a future amount to be received:
the lower its present value will be.
the higher its present value will be.
Time does not affect present value, so it doesn't matter how long we have to wait.
Beyond 10 years the value doesn't change anymore because 10 years might as well be 20 years.


Question 2.2. Common stock that pays cash dividends can be viewed as: (

an annuity-regularly spaced payments of the same dollar amount for a fixed number of periods.
a perpetuity-regularly spaced payments of the same dollar amount that continue indefinitely.
similar to a perpetuity but with irregular spacing of the dividends.
similar to a perpetuity but with dividends that change amount.


Question 3.3. In an amortized loan, the principal portion:
increases with every payment and is zero with the last payment.
increases with every payment and completely repays the loan with the last payment.
increases with every payment but at a decreasing rate.
does not change with every payment.


Question 4.4. Compounding means that:
dollar interest the first year is multiplied by the number of years to get total interest.
the same dollar amount of interest is paid each period.
interest is paid on interest earned in earlier periods.
the rate of interest grows over time.


Question 5.5. The cash flows for a perpetuity continue into the future indefinitely. An example of a perpetuity is:
preferred stock.
corporate bonds.
a home mortgage.
a consumer loan.


Question 6.6. Simple interest means that:
the interest rate is the same every period.
the dollar amount of interest is the same every period.
interest is only paid once a year.
the compounding periods are annual.


Question 7.7. Zeta Corporation just paid a $2.00 dividend. Analysts believe that Zeta Corporation's dividend will grow by 20% next year, and then settle into a constant growth regime at 5% per year into the future. If investors assign a required rate of return of 12% to Zeta's stock, what should the stock sell for today?
$30.00
$32.14
$34.29
$36.00


Question 8.8. E.I. du Pont de Nemours & Co. has an issue of $4.50 preferred stock outstanding. It is currently selling for $108. What rate of return are investors requiring?
4.17%
4.5%
9%
24%.


Question 9.9. Suppose a zero-coupon bond is selling for $614.00 today. It promises to pay $1,000 in exactly 10 years with annual compounding. Its annual rate of return would be about ____.
4%
5%
6%
7%


Question 10.10. Which of the following statements is NOT true about future values?
All else equal, the higher the interest rate, the larger the future value.
All else equal, the lower the interest rate, the larger the future value.
All else equal, the longer the investment time, the larger the future value.
All else equal, the larger the starting amount, the larger the future value