Your plans for the future have finally materialized because you have won the lottery. Congratulations! The lottery marketing material says you have won $20,000,000 but a more careful examination of the terms and conditions means that you have won twenty $1,000,000 beginning-of-the-year cash flows with the first cash flow today. Further, the lottery contract says […]
When estimating a firm’s FCFF we CANNOT ignore interest expenses because there is no way to incorporate these expenses into the cost of capital calculation. Indicate whether the statement is true or false ANSWER FALSE
The major DISADVANTAGES of the Free Cash Flow to the Firm method are that it can be more time consuming and difficult to use than other methods. Indicate whether the statement is true or false ANSWER FALSE
The safest endorsement of a check is a blank endorsement. Indicate whether the statement is true or false ANSWER FALSE
The beta of ABC Co. stock is the slope of A) the arbitrage pricing line. B) the security market line. C) the characteristic line for a plot of ABC Co. returns against the returns of the market portfolio for the same period. D) the characteristic line for a plot of returns on the S&P 500 […]
Consider the following assets: I. Treasury Strips, II. Coupon Treasury bonds, III. growth stocks, and IV. medium quality corporate bonds. An aggressive investor without high- priority future goals would prefer A) I. B) II. C) III. D) IV. ANSWER C
For “qualified tax-deferred” retirement plans, taxes A) never become due. B) become due only if the retiree dies. C) become due when the funds are withdrawn from the retirement fund. D) become due only at age 65. ANSWER C
You want $20,000 in 5 years to take your spouse on a second honeymoon. Your investment account earns 7% compounded semiannually. How much money must you put in the investment account today? (Round to the nearest $1.) A) $14,178 B) $13,349 C) $12,367 D) $15,985 ANSWER A
Derek owns a perpetuity contract that promises to pay him $1,000 per year in end-of the-year cash flows with the first cash flow beginning one year from today. Derek perceives some risk with the promised cash flows and has discounted them at an annual rate of 10.00% to determine the present value of the contract. […]
Life insurance policyholders typically receive dividends from A) mutual insurance companies. B) stock insurance companies. C) both mutual and stock insurance companies. D) neither mutual nor stock insurance companies. ANSWER A
