Your author describes an aspect of the 2007-2009 financial crisis concerning commercial paper and a financial instrument he refers to as an ABCP. Define an ABCP and the role it played in the financial crisis. What will be an ideal response? ANSWER The ABCP, or asset backed commercial paper market, consists of commercial […]
Rank the order of standard deviation of returns from highest to lowest for the following classes of U.S. securities for the time period 1926 – 2011. A) small stocks, large stocks, 30-year Treasury bonds, and 90-day T-bills B) large stocks, small stocks, 30-year Treasury bonds, and 90-day T-bills C) 90 -day T-bills, large stocks, 30-year […]
The major real-world benefit of debt is that interest payments are a tax-deductible expense. Indicate whether the statement is true or false ANSWER TRUE
A publicly traded firm just announced that its issuing debt to finance a new project. Which of the following scenarios is most likely TRUE in a market with asymmetric information? A) The firm’s future prospects look good and they are sending a costly signal that indicates they will be able to meet higher debt obligations. […]
Mark must buy four new tires for his car. He is considering buying tires that are $25 a piece more than his regular brand, because the higher priced tires are supposed to increase his miles per gallon by 20%. If the tires are good for 48,000 miles and Mark drives an average of 1,000 miles […]
When sizing up the operations of the firm, it is important to examine all of these EXCEPT: A) the current labor environment. B) the skill level of the firm’s work force. C) the capacity of the firm’s plant or facilities. D) None of the above. ANSWER D
Core Concepts Inc,. has experienced stock returns of 8.4%, 6.3%, and 14.2% over the last three years. Over this time period, what has been the firm’s arithmetic average annual rate of return? A) 9.58% B) 9.63% C) 9.88% D) 9.92% ANSWER B Explanation: B) (8.4 + 6.3 + 14.2)/3 = 9.63%
Rank the order of returns from highest to lowest for the following classes of U.S. securities for the time period 1926 – 2011. A) large stocks, small stocks, 30-year Treasury bonds, and 90-day T-bills B) small stocks, large stocks, 30-year Treasury bonds, and 90-day T-bills C) 30-year Treasury bonds, large stocks, small stocks, 90-day T-bills […]
A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a variable cost per unit of $3. What is its operating breakeven point if it targets net operating income of $10,000? A) 12,500 units B) 15,000 units C) 17,500 units D) 25,000 units ANSWER C
XYZ Corporation borrowed $100,000 for six months from the bank. The rate is prime plus 2 percent. The prime rate was 8.5 percent at the beginning of the loan and changed to 9 percent after two months. This was the only change. How much interest must XYZ corporation pay? A) $2,476 B) $5,417 C) $18,212 […]
