BMAL 590 Business Finance Exam Questions and Answers All Correct
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Course
BMAL 590 Business Finance
Institution
BMAL 590 Business Finance
BMAL 590 Business Finance Exam Questions and Answers All Correct
A protective feature on preferred stock that requires preferred dividends previously not paid to be disbursed before any common stock dividends can be paid is called what? - Answer- Cumulative dividends
A ________ is a financial ...
BMAL 590 Business Finance Exam
Questions and Answers All Correct
A protective feature on preferred stock that requires preferred dividends previously not
paid to be disbursed before any common stock dividends can be paid is called what? -
Answer- Cumulative dividends
A ________ is a financial instrument which gives the owner the right but not the
obligation to sell shares of stock at a specified price during a particular time period -
Answer- Put option
Which of the following is NOT an example of a financial asset? - Answer- Inventory
Which of the following is NOT a source of equity on a firm's balance sheet? - Answer-
Property, plant, and equipment
A ________ is an agreement between two firms where one firm agrees to sell some of
its financial assets to another and then buy the financial assets back from that firm at a
later time - Answer- Repurchase agreement
Bond ratings of ________ and higher are considered investment grade - Answer- BBB
Which of the following statements is most correct? Other things held constant, -
Answer- The "liquidity preference theory" would generally lead to an upward sloping
yield curve
Your uncle would like to restrict his interest rate risk and his default risk, but he still
would like to invest in corporate bonds. Which of the possible bonds listed below
satisfies your uncle's criteria? - Answer- AAA bond with 5 years to maturity
If the yield curve is downward sloping, what is the yield to maturity on a 10-year
Treasury coupon bond, relative to that on a 1-year T-bond? - Answer- The yield on the
10-year bond is less than a yield on a 1-year bond
An inverted yield curve - Answer- Exists when short-term rates exceed long-term rates
If the expectations theory of the term structure of interest rates is correct, and if the
other term structure theories are invalid, and we observe a downward sloping yield
, curve, which of the following is a true statement? - Answer- Investors expect short-term
rates to decrease in the future
Which of the following statements is most correct? - Answer- If the maturity risk
premium were zero and the rate of inflation were expected to increase in the future,
then the yield curve for U.S. Treasury securities would, other things held constant, have
an upward slope
Which of the following statements is correct? - Answer- Reinvestment rate risk is lower,
other things held constant, on long-term than short-term bonds
Which of the following is not one of the fundamental factors that affect the cost of
money? - Answer- Exchange rates
Most experts think that in the United States the real risk-free rate fluctuates between -
Answer- Two to four percent
Which of the following assets is the most liquid? - Answer- Cash
During recessions the demand for funds typically - Answer- Decreases
As the demand for fund increase, the demand curve will shift to the ________ resulting
in ________ market clearing interest rate - Answer- Right; higher
The ________ premium is compensation for possibility that the borrower will not be able
to pay the debt's interest and principal on time - Answer- Default risk
When a project's NPV exceeds zero, - Answer- The project should be accepted without
any further consideration, assuming we are confident that the cash flows and the
required rate of return have been properly estimated
The underlying cause of ranking conflicts between the NPV and IRR methods is
differing - Answer- Reinvestment rate assumption
Which of the following statements is correct? - Answer- The NPV method assumes that
cash flows will be reinvested at the required rate of return while the IRR method
assumes reinvestment at the IRR
Which of the following statements is most correct? - Answer- Sunk costs should be
ignored in capital budgeting
Which of the following statements is correct? - Answer- The incremental operating cash
flow for capital budgeting includes return on invested capital, which is net income, and
return of part of invested capital, which is depreciation
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