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. […]
Date: September 19th, 2020
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
Date: September 19th, 2020
A constant ratio plan adjusts a portfolio by A) investing a constant amount of money each period. B) maintaining a constant dividend yield. C) adjusting asset holdings to restore the initial target weights. D) maintaining a constant ratio of assets to the owner’s wealth. ANSWER C
Date: September 19th, 2020
Perpetuities last “forever” but annuities have a finite life. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Marble Corp. has a beta of 2.5 and a standard deviation of returns of 20%. The return on the market portfolio is 15% and the risk-free rate is 4%. According to CAPM, what is the required rate of return on Collectible’s stock? A) 26.5% B) 37.5% C) 23.5% D) 31.5% ANSWER D
Date: September 19th, 2020
The major DISADVANTAGE of the Free Cash Flow to the Firm method (and DCF methods in general) is that it is based on sound time value of money principles, Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
In a “qualified tax-deferred” retirement plan, taxes are deferred on A) employer contributions and interest earned by the retirement fund. B) only employer contributions. C) only interest earned by the retirement fund. D) only employee contributions. ANSWER A
Date: September 19th, 2020
The time value of money implies that one dollar today is worth more than one dollar tomorrow, due primarily to the opportunity cost of foregoing consumption today Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
What is the future value of $500 invested at 8.94% compounded quarterly for 12.5 years (rounded to nearest $1)? A) $46,739 B) $1,510 C) $670 D) $1,617 ANSWER B
Date: September 19th, 2020
Under the current law, lenders must meet quotas in extending credit to women and minorities. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
