Quiz Financial Management Chapters 6 and 7 1.When you purchase stock you are buying _______________ and ________________ 2.The stockholders elect the _______________ and they in turn hire the ______________ 3.A stock that pays little or no dividend is called a _________________ stock

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Nov 10, 2013 (4 years and 1 month ago)

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Quiz Financial Management Chapters 6 and 7

1.

When you purchase stock you are buying _______________ and ________________

2.

The stockholders elect the _______________ and they in turn hire the ______________

3.

A stock that pays little or no dividend is called a
_________________ stock

4.

Preferred stock is most like ________________ rather than common stock

5.

Name the four risks associated with investing in a fixed debt such as a bond

a.______________________ b. _______________________

c. _____________________ d.____
_____________________

6. A series of equal payments is called an _________________


7. Business investment decisions are driven by ___ ____ ____

8. This ratio (multiple) is used to predict the future value of a stock using EPS

9. The face rate i
s called the ____________ rate.

10. Bonds are priced in ________________

11. The table used to determine the present value of a future amount is _________

12. A shareholder receives a return on their investment two ways a. b.



Tr
ue and False

__1.Treasury bonds are long term government obligations

__2. Zero coupon bonds are sold at a discount to face amount

__3. Payback is a method of evaluating an investment that is not valid for financial purposes since
it does not take into cons
ideration the time value of money

__4.

A bond priced at 101 8/32 would sell for 1012.5.

__5. Inflation risk is when you receive your principle it has
de
creased purchasing power

__6. When you pay more than face amount for a bond your YTM will be less than
rate printed on
the bond

__7. Tax is due whenever your stock increases in value over the prior year

__8. A bond that is sold between interest periods sells at face amount

__9. A positive number when calculating NPV means the investment is returning positiv
e cash
flow.

__10. IRR is not related to NPV


Amount of investment 160,000

ROE required 15%. Cash flows by year listed

Calculate the NPV for each column. Follow the outline discussed in class and on the web





A B






C



Year one
45
,000



500
0




56000


Year two
50
,000



5000



56000


Year Three


70,000



5000



56000


Year four 70,000 250000



5
6000







a.

Which one returns the most amount of cash

b.

Which one meets the ROE required

c.

Rank in order of ROE

d.

What
are two issues with this chart