Mary has deposited just now $1,000 in a savings account at the

Chase Bank. She plans on depositing the amount for 2 years. In

finance, we call the $1,000 (the value of deposit today) the
____________________.
future value
present value
principal amount
discounted value
invested principal
Joan is computing the present value of a $5,000 bonus she will
receive in 1 year. The interest rate she is using in this process is
called the ___________.
current yield
effective rate
compound rate
simple rate
discount rate
Your rich aunt has promised to give you a $200,000-gift on your
graduation from an MBA program in four years. What happens to
the present value of this gift if you speed up your study to
graduate three years from now?
remains constant
increases
decreases
becomes negative
cannot be determined from the information provided
You want to have $2 million in your savings account when you
retire. You are going to invest a single lump sum today to fund
this goal. You plan on investing in an account which will pay you 5
percent annual interest. Which of the following will increase the
amount that you must deposit today to reach your retirement
saving goal?
I. Retire later.II. Retire sooner.III. Invest in a different account

paying 3 percent interest.IV. Invest in a different account paying 7

percent interest.
I only
II only
IV only
I and III only
II and III only
The interest rate quoted by a lender in a loan is called the
______________.
stated interest rate (annual percentage rate)
compound rate
effective annual rate
simple rate
common rate
Which of the following statements related to interest rates are
correct?
I. When comparing loans, you should compare the effective
annual rate.II. Annual and effective interest rates are equal when
interest is compounded annually.III. Effective annual rates
consider the effect of interest earned on reinvested interest
payments.IV. Lenders are required by law to disclose the effective
annual rate of a loan to prospective borrowers.
I and II only
III only
IV only
I, II and III only
II, III, and IV only
Which of the following statements concerning interest rates is/are
correct?I. Savers would prefer monthly compounding over annual
compounding.II. Borrowers would prefer monthly compounding
over annual compounding.III. The effective annual rate will never
be equal to the annual percentage rate.IV. The effective annual

rate increases as the number of compounding periods per year

decreases.V. For any positive rate of interest, the effective annual
rate will always exceed the annual percentage rate.
I only
III only
I and II only
I, III and IV only
II, III and V only
Which of the following statements related to annuities and
perpetuities is/are correct?I. Most loans are a form of a perpetuity.
II. Perpetuities are finite but annuities are not.III.The present value
of a perpetuity can be computed, but the future value cannot.IV.
An ordinary annuity is worth more than an annuity due given
equal annual cash flows for five years at 10 percent interest,
compounded annually.V. A perpetuity comprised of $500 monthly
payments is worth more than an ten year annuity comprised of
$500 monthly payments, given an interest rate of 12 percent,
compounded monthly.
II and III only
I, II and IV only
IV and V only
III and V only
I, II, IV and V only
Which of the following statements do/does not state a
relationship correctly?I. Time and future values are negatively
related, all else held constant.II. Interest rates and time are
positively related, all else held constant.III. An increase in the
discount rate increases the present value, given positive rates.IV.
Time has the greatest impact on the future value given a zero
rate of interest among other interest rates.V. Time and present
value are inversely related, all else held constant.
III and IV only
IV and V only
I, II, III and IV only
I and V only

I, II and III only

Joanna has just purchased a bond issued by Dell, Inc. The bond
pays $45 once a year in interest. The par value of the bond is
$1,000 and the coupon rate is 4.5%. This $45 is thus called
______________.
annual coupon
face value
discount
semi-annual coupon
yield
If the bond market now requires a return of 8 percent on the 20year bonds issued by Advanced Computers, Inc., then the 8
percent should be the bond's ____________.
coupon rate
face rate
call rate
yield to maturity
coupon rate
Wal-mart has issued today bonds that do not make coupon
payments over their lives, these bonds are examples of
_______________.
debentures
callable bonds
floating-rate bonds
junk bonds
zero coupon bonds
Walkman's 10-year bond has now a market price that is equal to
its par (or face) value. Which of the following features currently
apply/applies to this bond?I. sells at par valueII. sells at premium
priceIII. sells at discounted priceIV. yield-to-maturity that exceeds
the coupon rateV. yield-to-maturity that is less than the coupon
rateVI. yield-to-maturity that is equal to the coupon rate

III only
I and VI only
I and IV only
I, II and III only
II, III and IV only
Priceline has an annual coupon bond outstanding. All else equal, if
the market interest rate decreases, what will happen to the
bond?
increase in the coupon rate
decrease in the coupon rate
increase in the market price
decrease in the market price
increase in the time period
Which of the following relationships apply/applies to a discount
bond?I. coupon rate > yield-to-maturityII. current yield = yield-tomaturityIII. market price = call priceIV. market price < face value
I only
I and IV only
IV only
I, II, and III only
II, III, and IV only
Which of the following will decrease the price sensitivity of a bond
to changes in interest rates?
I. decrease in coupon rateII. increase in coupon rateIII. increase in
time to maturityIV. decrease in time to maturity
II only
I and III only
I and IV only
II and III only
II and IV only

The model that enables us to estimate the present value of a

stock based on its next annual dividend, the annual dividend
growth rate, and the applicable annual discount rate is called
___________________.
zero growth model
dividend growth model
capital pricing model
earnings capitalization model
discounted price model

In accordance with the dividend growth model, a decrease in

____________ will lead to a decrease in the current value of a
stock.
I. discount rate
II. dividend amount
III. dividend growth rate
I only
II only
I and II only
II and III only
I, II and III
The dividend growth model:I. can be used to value zero-growth
stocks.II. can be used to compute a stock's price at any point in
time.III. requires the growth rate to be lower than the required
return.IV. assumes that dividends increase by a constant amount
forever.
I only
II only
I and IV only
III and IV only
I, II and III only

The major assumption of the dividend growth model is :

A stock has the same value to every investor.
A stock's value is equal to the discounted present value of the
future cash flows which it generates.
A stock's value changes in direct relation to the required return.
Stocks that pay the same annual dividend have equal market
values.
The dividend growth rate is inversely related to a stock's market
price.
Which of the following statements is/are correct concerning the
two-stage dividend growth model?
I. G1 can be negative.
II. Pt = Dt/R.
III.G1 must be greater than G2.
IV.G1 can be greater than R.
V. R must be less than G1 but greater than G2.
I, II and III only
I and IV only
None of the statements is correct.
III and V only
I, II, IV and V only
As a holder of 1,000 shares of Best Bank's preferred stock, Cary
Stevenson has the right(s) to ___________________ of the company.
I. elect the corporate directorsII. vote on proposed mergersIII.
share in company profits prior to other shareholdersIV. all residual
income after the common dividends have been paid
I only
III only
I and IV only
II, III, and IV only
I, II, III, and IV

Which of the following statements is/are correct?I. Preferred

stocks have positive growth dividends.II. The capital gains yield is
the semi-annual rate of change in a stock's price.III. A constant
dividend stock can be valued using the dividend growth model.IV.
The dividend growth model can be used to compute the current
value of some particular types of stocks only.V. An increase in the
required return will decrease the capital gains yield assuming that
the dividend yield remains constant.
I and II only
I, II and III only
III and V only
I, II, III and V only
I, II, III, IV and V