Investment Proposals – Finance Exam
The key terms of Finance exam include, Investment Proposals.
To evaluate or compare investment proposals, we must adjust the value of cash flows to a common date
True
An example of an annuity is the interest received from binds
True
Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65, when he retires. The amount Bill has in his IRA at age 65 can be characterized as the future value of annuity
True
When repaying an amortized loan, the interest payments increase over time due to compounding process
False
common examples of financial intermediaries include all of the following except
Venture Capital Firms
John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation common stock. This transaction occurs in the
secondary market
General Motors raises money by selling a new issue of common stock. This transaction occur in
the capital market
All of the following securities are sold in money markets EXCEPT:
common stock(Are sold in money markets: commercial paper, 6 month certificates of deposit, 3 month U.S Treasury bills)
Which of the fol.lowing is an advantage of organized stock exchanges?
providing a continuous market
The telecommunications system that provides a national information linkup among brokers and dealers operating in the over-the-counter market is called:
NASDAQ
In August 2004, Google first sold its common stock to the public at $85 per share and raised $1.76 billion. This is an example of
primary market transaction
The Securities and Exchange Commission (SEC)
regulates both primary and secondary markets
The investment banker performs three basic functions:
(1) underwriting (2) distributing (3) advising
The negotiated purchased is the most prevalent method of securities distribution in the private sector
True
Investment banking firms are prohibited from selling securities due to conflicts of interest
False
It is common practice among the largest corporations to sell their securities directly to investors
False
The competitive bid purchase is largely confined to railroad, public utility, and municipal bond issues
True
Because they occur in private, stricter regulations are placed on the private placements of securities
False
Investment firms, such as Goldman Sachs, assist the transfer of capital by
facilitating indirect transfers from savers (investing public) to borrowers (corporations needing capital)
The investment banker does NOT underwrite the securities to be issued in which of the following?
best efforts
A “Dutch auction” was used by Google to raise money in 2004. A Dutch auction involves
Allowing investors to submit bids saying how many shares they’d like to buy and at what price
In private placement, the securities are offered and sold to a limited number of investors
True
Over time, there has been a high correlation between actual rates of return on securities and the securities’ standard deviations of return
True
Investors expect to receive the highest returns from government-issued securities because the government will not default on securities that it has issued
False
The real rate of return is the return earned above the
Inflation risk premium
Which of the following represents the correct ordering of returns over the period 1926 to 2008 (from lowest to highest return)?
Treasury bills, Long-term corporate bonds, Common stocks, Small firm common stocks
In response to the banking crisis and economic collapse of 2007 and 2008, the U.S government moved to increase interest rates in order to attract foreign capital seeking high returns in U.S banks
Flase
The time value of money is the opportunity cost of passing up the earning potential of a dollar today
True
A rational investor would receive $1,200 today rather than $100 per month for 12 months
True
When using a financial calculator, cash outflows generally have to be entered as negative numbers, because a financial calculator sees money leaving your hands.
True
John has to pay $1,000 per month for his mortgage for another 5 years, but he is considering paying the mortgage off in one lump sum. John cannot calculate the present value of the payments using the annuity formulas because his payments are monthly and not once per year
False
To evaluate or compare investment proposals, we must adjust the value of cash flows to a common date
True
An example of an annuity is the interest received from binds
True
Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65, when he retires. The amount Bill has in his IRA at age 65 can be characterized as the future value of annuity
True
When repaying an amortized loan, the interest payments increase over time due to compounding process
False
The future value of annuity due is greater than the future value of an otherwise identical ordinary annuity
True
A return of 12% compounded annually is the same as a return of 1% per month
False