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Question
Which of the following statements is CORRECT?a. All else equal, long-term bonds have less interest rate price risk than short-term bonds.
b. All else equal, low-coupon bonds have less interest rate price risk than high-coupon bonds.
c. All else equal, short-term bonds have less reinvestment rate risk than long-term bonds.
d. All else equal, long-term bonds have less reinvestment rate risk than short-term bonds.
e. All else equal, high-coupon bonds have less reinvestment rate risk than low-coupon bonds.
Answer
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Q:
In a portfolio of three different stocks, which of the following could NOT be true?
a. The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.
b. The beta of the portfolio is less than the betas of each of the individual stocks.
c. The beta of the portfolio is greater than the beta of one or two of the individual stocks' betas.
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a. True
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From the lessee viewpoint, the riskiness of the cash flows, with the possible exception of the residual value, is about the same as the riskiness of the lessee's
a. capital budgeting project cash flows.
b. debt cash flows.
c. pension fund cash flows.
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b. The flotation costs associated with issuing new bonds rise.
c. The firm's CFO believes that interest rates are likely to decline in the future.
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Suppose that you're planning a vacation and borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value. What effective annual interest rate are you being charged?a. 14.00%b. 8.57%c. 16.28%d. 21.21%e. 28.00%
Q:
Which of the following is not correct for a firm with seasonal sales and customers who all pay promptly at the end of 30 days?
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b. The level of accounts receivable will be constant from month to month.
c. The ratio of accounts receivable to sales will vary from month to month.
d. The level of accounts receivable at the end of each quarter will be the same.
e. DSO will vary from month to month.
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DSO analysis of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales.
a. True
b. False