Advanced Business Finance Exam 1 Post Questions Solved Correctly.
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Course
Business finance
Institution
Business Finance
When is the only time cash flows can be compared or combined? - Answer -when they are valued at the same point in time
When you calculate a cash flow's future value, you must - Answer -compound it
When you calculate a future cash flow's present value, you must - Answer -discount it
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Advanced Business Finance Exam 1
Post Questions Solved Correctly.
When is the only time cash flows can be compared or combined? - Answer -when they are valued at
the same point in time
When you calculate a cash flow's future value, you must - Answer -compound it
When you calculate a future cash flow's present value, you must - Answer -discount it
When computing present or future values, what should you adjust to match the time period of the cash
flows? - Answer -discount rate
How is an APR period rate converted to a different number of periods? - Answer -APR x number of
periods per year
When valuing a set of cash flows do you use APR or EAR? - Answer -always use EAR
What are the three determinants of interest rates? - Answer -inflation rate
-nominal rate
-real rate
What is the relationship between the inflation rate and nominal interest rate? - Answer -if nominal
interest rates increase then so does inflation and vise versa
What information is shown on a bond certificate? - Answer -terms
-amount and dates of payments
What are coupons? - Answer -the promised interest payments of a bond
-usually paid semiannually(frequency listed on certificate)
, What is the maturity date of a bond? - Answer -final repayment date of the bond
-payments continue until this date
What is the notional amount used to compute the interest payments? - Answer -Principal / Face Value
What does term refer to with bonds? - Answer -time remaining until repayment date
When a bond is valued at greater than face value it is referred to as - Answer -a premium
-coupon rate > yield to maturity
When a bond is valued at less than face value it is referred to as - Answer -a discount
-coupon rate < yield to maturity
Why do bond prices change? - Answer -interest rate risk
What is unpredictable about bonds? - Answer -changes in rates
Why are long term bonds riskier than short term? - Answer -greater risk of issuing company going
under
-greater risk of changing rates
What makes a bond more or less risky? - Answer -sensitivity to changing interest rates
-low coupon = more sensitive more risky
-high coupon = less sensitive less risky
Why do investors pay less for corporate bonds than they do for treasury? - Answer -corporate bonds
have a credit risk
-treasury bonds have zero default risk
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