Distinguish between the concepts of the inflation premium and the default-risk premium. What will be an ideal response? ANSWER Inflation premium is a premium to compensate for anticipated inflation that is equal to the price change expected to occur over the life of the bond or investment instrument. Default-risk premium is the additional […]
Firms paying excess dividends may cause shareholders to pay taxes sooner and at a higher marginal tax rate than if the firm either held the excess funds, or found additional satisfactory investments. Indicate whether the statement is true or false ANSWER TRUE
It is possible for two companies to have the same financial performance, but their financial statements can be different, depending on how and when the managers choose to report certain transactions. Indicate whether the statement is true or false ANSWER TRUE
WRJ has a debt ratio of .4, current liabilities of $18,000, and total assets of $120,000. What is the level of WRJ’s total liabilities? A) $63,934 B) $22,000 C) $48,000 D) $58,000 ANSWER C
With a debit card, A) you can charge payments in excess of your line of credit. B) your purchases are not limited by the amount in your bank deposit. C) your purchases are immediately deducted from your bank deposit. D) your purchases are deducted from your bank deposit after a grace period. ANSWER […]
You are ready to retire. A glance at your 401(k) statement indicates that you have $750,000. If the funds remain in an account earning 9.0%, how much could you withdraw at the beginning of each year for the next 25 years? A) $55,620 B) $35,830 C) $2,500 D) $70,050 ANSWER D
Acme Incorporated has a debt ratio of .42, noncurrent liabilities of $20,000 and total assets of $70,000. What is Acme’s level of current liabilities? A) $9,400 B) $12,348 C) $10,600 D) $8,400 ANSWER A
Distinguish between the concepts of the maturity-risk premium and the liquidity-risk premium. What will be an ideal response? ANSWER Maturity-risk premium is the additional return required by investors in longer-term securities to compensate them for greater risk of price fluctuations on those securities caused by interest rate changes. Liquidity-risk premium is the additional […]
Financial progress is measured more appropriately by an increase in net worth rather than by an increase in total assets. Indicate whether the statement is true or false ANSWER TRUE
Corporations tend to be MORE reluctant to increase dividends than to cut them. Indicate whether the statement is true or false ANSWER FALSE
