What are the goals of the Federal Reserve and how does the Federal Reserve attempt to control inflation”? Why is low and steady inflation important? What will be an ideal response? ANSWER The Fed’s primary goals are to maintain stable prices or low and steady inflation, maximize employment, and moderate long-term interest rates. […]
A compensating balance not only forces the borrower to be a good customer of the bank but may also raise the interest cost to the borrower. Indicate whether the statement is true or false ANSWER TRUE
Higher the riskiness of a borrower, higher is the premium charged above the prime rate by a banker. Indicate whether the statement is true or false ANSWER TRUE
Which of the following is true of leverage? A) It refers to the effects that operating and financial fixed costs have on the returns that shareholders earn. B) It is associated with risks which are out of the control of managers. C) It includes the effect of operating fixed costs on the returns of shareholders […]
Which of the following is NOT one of M&M’s perfect capital market assumptions? A) No taxes B) Individuals can borrow or lend at the same rate C) Every party has equal access to information D) Bankruptcy costs are reasonably low ANSWER D
Which of the following interest rates would be inappropriate for use as a base rate for a variable rate bond? A) The prime rate B) LIBOR C) A rate determined by the bond issuer’s board of directors. D) The 10-year Treasury bond rate. ANSWER C
Typically, the rate of return on ________ exceeds the rate of return on ________. A) long-term bonds; short-term bonds. B) government bonds; similar maturity corporate bonds. C) short-term bonds; long-term bonds. D) marketable securities; common stock. ANSWER A
What are the three shapes of the yield curve that tend to be associated with different stages of the business cycle? How would you categorize the current business cycle? Explain your answer. What will be an ideal response? ANSWER Periods of expansion are associated with upward-sloping yield curves, because inflation and interest rates […]
Lines of credit are non-guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time. Indicate whether the statement is true or false ANSWER TRUE
Since the sales price per unit generally decreases with volume and the cost per unit generally increases with volume, the true breakeven point may be different from those obtained using linear revenue and cost functions as assumed in the breakeven analysis. Indicate whether the statement is true or false ANSWER TRUE
