Download AGEC 4040 EXAM 2 CORRECT ANSWERS!! and more Exams Nursing in PDF only on Docsity!
AGEC 4040 EXAM 2 CORRECT ANSWERS!!
The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ______ interest rate.________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds. - Answers nominal _____ yield curve reflects higher expected future rates of interest. - Answers An upward-sloping (nominal yield curve) Generally, an increase in risk will result in ____ required return or interest rate. - Answers A higher The _____ rate of interest is typically the required rate of return on a three- month U.S. Treasury bill. - Answers risk-free A yield curve that reflects relatively similar borrowing costs for both short- term and long-term loans is called - Answers flat yield curve The cost of long-term debt generally _____ that of short-term debt. - Answers is greater than If a bond pays $1,000 plus interest at maturity, $1,000 is called the - Answers par value
______ is secured by real estate. - Answers A mortgage bond The process that links risk and return in order to determine the worth of an asset is termed - Answers valuation Bonds are - Answers long-term debt instruments The key inputs to the valuation process include - Answers cash flow, cash flow timing, and risk The market price of outstanding issues varies from par because - Answers the market rate of interest has changed If the required return is greater than the coupon rate, a bond will sell at - Answers a discount _____ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends. - Answers preferred stockholders The cost of preferred stock is - Answers higher than the cost of long term debt and lower than the cost of common stock
______ probability distribution shows all possible outcomes and associated probabilities for a given event. - Answers a continuous The ____ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. - Answers coefficient of variation The ____ the coefficient of variation, the _____ the risk. - Answers lower, lower A collection of assets is called a(n) - Answers portfolio Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________. - Answers Positively, +1, negatively, - Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and _________ level of risk. - Answers the same, a lower Combining two negatively correlated assets to reduce risk is known as - Answers diversification Systematic risk is also referred to as - Answers nondiversifiable risk
The purpose of adding an asset with a negative or low positive beta is to - Answers reduce risk _____ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation. - Answers diversifiable Wat, inflation, and the condition of the foreign markets are all examples of - Answers nondiversifiable risk A beta coefficient of -1 represents an asset that - Answers has the same response as the market portfolio but in opposite direction The beta of a portfolio is - Answers the weighted average of the betas of the individual assets in the portfolio The four basic sources of long-term funds for the business firm are - Answers long-term debt, common stock, preferred stock, and retained earnings The ____ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions. - Answers cost of capital A tax adjustment must be made in determining the cost of ________. - Answers long-term debt
The risk of an asset can be measured by its variance, which is found by subtracting the worst outcome from the best outcome. 71 - Answers
- False For the risk-average manager, required return would increase for an increase in risk. 72 - Answers 72. False In computing the weighted average cost of capital, the historic weights are either book value or market value weights based on actual capital structure proportions. 73 - Answers 73. True Use of the Capital Asset Pricing Model (CAPM) in measuring the cost of common stock equity differs from the constant growth valuation model in that it directly considers the firm's risk as reflected by beta. 74 - Answers
- True The cost of retained earnings is always lower than the cost of a new issue of common stock due to the absence of floatation costs when financing projects with retained earnings. 75 - Answers 75. True In comparing an ordinary annuity and an annuity due, which of the following is true? - Answers The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity. The future value of a dollar ________ as the interest rate increases and ________ the further in the future an initial deposit is to be received. - Answers increases; increases
________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds. - Answers Real A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks. - Answers yield curve A(n) ________ yield curve reflects higher expected future rates of interest.
- Answers Upward sloping The value of any asset is the ____ - Answers present value sum of all future cash flows it is expected to provide over the relevant time period. In the basic valuation model, risk is generally incorporated into the ________. - Answers Cash flow Corporate bonds have a ________. - Answers specified coupon rate paid annually The value of a bond is the present value of its interest payments plus ________. - Answers present value of its par value Bonds which sell at less than face value are priced at a ________, while bonds which sell at greater 14) than face value sell at a ________. - Answers discounted;premium
Risk aversion is the behavior exhibited by managers who require ________. - Answers an increase in return, for a given increase in risk ________ is the extent of an asset's risk. It is found by subtracting the pessimistic outcome from the optimistic outcome. - Answers Range The goal of an efficient portfolio is to ________. - Answers minimize risk for a given return A ________ measures the dispersion around the expected value. - Answers standard deviation A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return. - Answers efficient Table 8. Expected Return (%) Asset A Asset B Asset C Year 1686 2777 3868
- The portfolio with a standard deviation of zero ________. (See Table 8.1) - Answers is not probable
The correlation of returns between Asset A and Asset B can be characterized as ________. (See Table 8.1) - Answers perfectly negatively correlated Risk that affects all firms is called 2 - Answers nondiversifiable risk 2 A beta coefficient of +1 represents an asset that ________. - Answers has the same response as the marker portfolio The portion of an asset's risk that is attributable to firm-specific, random causes is called ________. - Answers unsystematic (diversifiable) risk In the most basic sense, risk is a measure of the uncertainty surrounding the return that an 37) investment will earn. - Answers True 37 In the valuation process, the higher the risk, the greater is the required return. 38 - Answers true 38 The inclusion of assets from countries with business cycles that are not highly correlated with the 39) U.S. business cycle reduces the portfolio's responsiveness to market movements. - Answers False 39 The range of an asset's risk is found by subtracting the worst outcome from the best outcome. 40) - Answers False 40
