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1. ,Financial savers who have excess funds after consumption and real investment may trade:,,securities for funds ,funds for financial assets ,financial assets for funds ,securities for contracts for future payment ,,,2. ,The financial market which trades short-term, high quality, debt securities is called the:,,Capital market ,Primary market ,Debt Market ,Money Market ,,,3. The first time a security is sold and a borrowing firm receives funds for their securities is traded in:,the primary market ,the secondary market ,the term market ,an initial public offering or IPO ,,,4. What are the four primary disadvantages of the sole proprietorship and partnerships forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form? ,,,,5. While a broker brings buyer and seller together, a dealer: ,only serves the seller. ,works for a bank. ,owns an inventory of securities and trades with buying and selling investors. ,receives commissions on trades made. ,,,6. All but one of the following is associated with stock exchanges? ,Listing ,Specialist ,Over-the-counter trading ,Member ,,,7. When the level of interest rates is rising significantly, stock prices are usually: ,Rising along with interest rates. ,Not related to movements in interest rates. ,falling because of the bad economic news. ,falling to align stock returns with higher yields in financial markets.,,,,8. The yield on new Treasury Bills is often called the ____________ by financial market participants. This rate includes the pure or real interest rate plus a premium for __________? ,going rate; default risk. ,risk free rate; inflation. ,discount rate; illiquidity. ,risk free rate; time value. ,,,9. The ________ is a measure of accounting value at a point in time, while the _______ measures changes in shareholders’ equity from revenue/expense during a period of time. ,balance sheet; statement of cash flow ,income statement; balance sheet ,balance sheet; income statement ,statement of cash flow; income statement ,,,10. All of the following but one are included in a company annual report? ,A recommendation from a financial analyst. ,GAAP financial statements. ,Performance report from senior management. ,Public relations information. ,,,11. Which of the following is a source of funds? ,A decrease in account receivable. ,A decrease in accounts payable. ,Cash dividends paid in the period. ,Investment in new plant. ,,,12. The most likely dividing items for the common size income statement and balance sheet, respectively, are: ,net income; total assets. ,sales; current assets. ,gross profit; total assets. ,sales; total assets. ,,,13. The quick or acid test liquidity ratio omits what account from current assets? ,Accounts receivable. ,Inventory. ,Cash. ,Other current assets. ,,,14. All but one of the following is an indicator that a company is approaching insolvency? ,The company’s debt rating has been downgraded by Standard & Poor’s. ,The stock price has declined 50% in the last two weeks. ,The current ratio has increased from 1.5:1 to 2.5:1 in the last three months. ,Banks have agreed to lend more and the company has pledged their inventory and accounts receivable as collateral for the loans. ,,,15. If a business were converting its current assets to cash quicker than last year, which of the following is likely to be occurring? ,The company’s turnover ratios would be increasing. ,Account payable would be increasing. ,The collection period would be increasing. ,The total asset turnover would be decreasing. ,,,16. Economic value added, EVA, is a company performance indicator that seeks to measure the profits for the period after including all costs, including the costs of: ,equity. ,debt. ,stock options. ,operations. ,,,17. You are talking to your roommate about an investment proposal he was offered. The proposal indicated that you could double your money in 6 years. According to his reasoning, that would be an annual rate of 16.67% per year. Do you agree with his assessment that he would earn that rate? ,Disagree. The true rate is 33% per year. ,Disagree. The true rate is only 8.33% per year. ,Disagree. The true rate is 12.25%. ,Agree. The rate is 16.67%. ,,,18. You are attempting to save for a trip to Europe to celebrate your graduation from college. You estimate that you will need $4,000 to provide you with a 10-day trip to Europe when you graduate in 24 months. You currently have $1,500 in savings that you can put toward the trip and plan to save on a monthly basis for the next 24 months to accumulate the funds required for the trip. You will be putting the money in a tax-exempt money market fund that is currently yielding an annual rate of 3.5% with monthly compounding. Your first monthly payment will be made a month from today. How much will you need to save each month to have the money for the trip? ,$96.34 ,$100.72 ,$15.68 ,$104.17 ,$98.00 ,,,19. Using the Effective Annual Interest Rate as a basis for comparison, which one of the following investments would offer the highest effective rate of return? The credit union is offering a monthly compounded rate of 0.97%. The local bank is offering a quarterly compounded rate of 2.98%. An insurance company is promising an annual return on its products of 12.13%. ,Insurance Company ,Credit Union ,Bank ,,,20. You have just won a lottery that gives you a choice of receiving $8,400 a month for the next 20 years or a lump sum payment of $1,200,000. You estimate that you could safely earn an annual rate of approximately 7% with monthly compounding in a very safe investment, and you are attempting to make the best financial decision. Assume that there would not be any differences in taxes for these alternatives. Which one of the alternatives is the best? ,Take the up-front payment of $1,200,000. ,Take the series of payments of $8,400 per month for the next 20 years. ,Take either one since they both have the same value. ,,,,,,,,21. You are considering a renewal of your subscription to Guitar Player Magazine. You have to pay in advance for any subscription renewals. A three-year subscription would be like three annual subscriptions but the payments would have to be at the beginning of the year. You assume that the annual subscription rate will remain at $14. Also, you currently have a savings account that is paying you a 6% rate with monthly compounding.,The magazine is offering the following subscription alternatives:,1-year renewal: $14.00,2-year renewal: $26.00,3-year renewal: $32.00,Assuming that you plan to continue reading the magazine for at least 3 years and that the annual subscription rate in future years will remain at $14, which alternative is the most financially sound?,,Subscribe for now and then subscribe again at the beginning of each of the next two years. ,Subscribe for 2 years now and then subscribe again for the third year in two years. ,Subscribe for all 3 years now. ,,,22. You are considering the possibility of leasing a new car or purchasing a new car. The only factor that is relevant for you consideration for this decision at the present time is the before-tax cash flows for the alternatives. You want to make the decision based on the concept of time value of money. The lease requires an upfront payment of $1,000 and 36 monthly payments of $565 per month. At the end of the lease, you will have to turn the car in, and the estimated value of the car at the end of the lease is $15,000. The alternative to the lease is to come up with an $8,000 down payment and finance the car for 3 years with the same payments of $565 per month. At the end of 3 years, you would own the car outright. The purchase price on the car is $28,000. Which of the two alternatives has the lowest cost of ownership on a present value basis? For this comparison, you figure that you could earn a 6% rate compounded monthly. ,Lease. ,Purchase. ,The lease and purchase have an equal cost of ownership. ,,,23. You are looking at financing a new car. One dealership is offering a financing package of an annual rate of 1.2% per year for 3-year financing. The car that you are considering will require you to finance $18,000 over 3 years. What would be your monthly payment? ,$500.00 ,$512.05 ,$509.30 ,$618.70 ,,,,24. Book values vs Market values: ,1. In preparing a balance sheet, why do you think standard accounting practice focuses on historical cost rather than market value? ,2. Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs, the owners’ equity is negative. Can this happen with market value? Why or why not?,,,,25. What are the five groups of ratios? Give two or three examples of each kind. ,,,,26. Turnover ratios all have one or two figures as the numerator. What are these two figures? What do these ratios measure? How do you interpret the results? ,,,,27. What are SIC codes and how might they be useful? ,,,,28. Return on assets, or ROA, can be expressed as the product of two ratios. Which two? ,,,,29. What is a balloon payment? How do you determine its value?,,,,30. What is an interest only loan? What is a pure discount loan? Explain. ,",- Sent to Finance Expert Tutor on 12/20/2010 at 2:18am,You asked:,"1. ,Financial savers who have excess funds after consumption and real investment may trade:,,securities for funds ,funds for financial assets ,financial assets for funds ,securities for contracts for future payment ,,,2. ,The financial market which trades short-term, high quality, debt securities is called the:,,Capital market ,Primary market ,Debt Market ,Money Market ,,,3. The first time a security is sold and a borrowing firm receives funds for their securities is traded in:,the primary market ,the secondary market ,the term market ,an initial public offering or IPO ,,,4. What are the four primary disadvantages of the sole proprietorship and partnerships forms of business organization? What benefits are there to these types of business organization as opposed to the corporate form? ,,,,5. While a broker brings buyer and seller together, a dealer: ,only serves the seller. ,works for a bank. ,owns an inventory of securities and trades with buying and selling investors. ,receives commissions on trades made. ,,,6. All but one of the following is associated with stock exchanges? ,Listing ,Specialist ,Over-the-counter trading ,Member ,,,7. When the level of interest rates is rising significantly, stock prices are usually: ,Rising along with interest rates. ,Not related to movements in interest rates. ,falling because of the bad economic news. ,falling to align stock returns with higher yields in financial markets.,,,,8. The yield on new Treasury Bills is often called the ____________ by financial market participants. This rate includes the pure or real interest rate plus a premium for __________? ,going rate; default risk. ,risk free rate; inflation. ,discount rate; illiquidity. ,risk free rate; time value. ,,,9. The ________ is a measure of accounting value at a point in time, while the _______ measures changes in shareholders’ equity from revenue/expense during a period of time. ,balance sheet; statement of cash flow ,income statement; balance sheet ,balance sheet; income statement ,statement of cash flow; income statement ,,,10. All of the following but one are included in a company annual report? ,A recommendation from a financial analyst. ,GAAP financial statements. ,Performance report from senior management. ,Public relations information. ,,,11. Which of the following is a source of funds? ,A decrease in account receivable. ,A decrease in accounts payable. ,Cash dividends paid in the period. ,Investment in new plant. ,,,12. The most likely dividing items for the common size income statement and balance sheet, respectively, are: ,net income; total assets. ,sales; current assets. ,gross profit; total assets. ,sales; total assets. ,,,13. The quick or acid test liquidity ratio omits what account from current assets? ,Accounts receivable. ,Inventory. ,Cash. ,Other current assets. ,,,14. All but one of the following is an indicator that a company is approaching insolvency? ,The company’s debt rating has been downgraded by Standard & Poor’s. ,The stock price has declined 50% in the last two weeks. ,The current ratio has increased from 1.5:1 to 2.5:1 in the last three months. ,Banks have agreed to lend more and the company has pledged their inventory and accounts receivable as collateral for the loans. ,,,15. If a business were converting its current assets to cash quicker than last year, which of the following is likely to be occurring? ,The company’s turnover ratios would be increasing. ,Account payable would be increasing. ,The collection period would be increasing. ,The total asset turnover would be decreasing. ,,,16. Economic value added, EVA, is a company performance indicator that seeks to measure the profits for the period after including all costs, including the costs of: ,equity. ,debt. ,stock options. ,operations. ,,,17. You are talking to your roommate about an investment proposal he was offered. The proposal indicated that you could double your money in 6 years. According to his reasoning, that would be an annual rate of 16.67% per year. Do you agree with his assessment that he would earn that rate? ,Disagree. The true rate is 33% per year. ,Disagree. The true rate is only 8.33% per year. ,Disagree. The true rate is 12.25%. ,Agree. The rate is 16.67%. ,,,18. You are attempting to save for a trip to Europe to celebrate your graduation from college. You estimate that you will need $4,000 to provide you with a 10-day trip to Europe when you graduate in 24 months. You currently have $1,500 in savings that you can put toward the trip and plan to save on a monthly basis for the next 24 months to accumulate the funds required for the trip. You will be putting the money in a tax-exempt money market fund that is currently yielding an annual rate of 3.5% with monthly compounding. Your first monthly payment will be made a month from today. How much will you need to save each month to have the money for the trip? ,$96.34 ,$100.72 ,$15.68 ,$104.17 ,$98.00 ,,,19. Using the Effective Annual Interest Rate as a basis for comparison, which one of the following investments would offer the highest effective rate of return? The credit union is offering a monthly compounded rate of 0.97%. The local bank is offering a quarterly compounded rate of 2.98%. An insurance company is promising an annual return on its products of 12.13%. ,Insurance Company ,Credit Union ,Bank ,,,20. You have just won a lottery that gives you a choice of receiving $8,400 a month for the next 20 years or a lump sum payment of $1,200,000. You estimate that you could safely earn an annual rate of approximately 7% with monthly compounding in a very safe investment, and you are attempting to make the best financial decision. Assume that there would not be any differences in taxes for these alternatives. Which one of the alternatives is the best? ,Take the up-front payment of $1,200,000. ,Take the series of payments of $8,400 per month for the next 20 years. ,Take either one since they both have the same value. ,,,,,,,,21. You are considering a renewal of your subscription to Guitar Player Magazine. You have to pay in advance for any subscription renewals. A three-year subscription would be like three annual subscriptions but the payments would have to be at the beginning of the year. You assume that the annual subscription rate will remain at $14. Also, you currently have a savings account that is paying you a 6% rate with monthly compounding.,The magazine is offering the following subscription alternatives:,1-year renewal: $14.00,2-year renewal: $26.00,3-year renewal: $32.00,Assuming that you plan to continue reading the magazine for at least 3 years and that the annual subscription rate in future years will remain at $14, which alternative is the most financially sound?,,Subscribe for now and then subscribe again at the beginning of each of the next two years. ,Subscribe for 2 years now and then subscribe again for the third year in two years. ,Subscribe for all 3 years now. ,,,22. You are considering the possibility of leasing a new car or purchasing a new car. The only factor that is relevant for you consideration for this decision at the present time is the before-tax cash flows for the alternatives. You want to make the decision based on the concept of time value of money. The lease requires an upfront payment of $1,000 and 36 monthly payments of $565 per month. At the end of the lease, you will have to turn the car in, and the estimated value of the car at the end of the lease is $15,000. The alternative to the lease is to come up with an $8,000 down payment and finance the car for 3 years with the same payments of $565 per month. At the end of 3 years, you would own the car outright. The purchase price on the car is $28,000. Which of the two alternatives has the lowest cost of ownership on a present value basis? For this comparison, you figure that you could earn a 6% rate compounded monthly. ,Lease. ,Purchase. ,The lease and purchase have an equal cost of ownership. ,,,23. You are looking at financing a new car. One dealership is offering a financing package of an annual rate of 1.2% per year for 3-year financing. The car that you are considering will require you to finance $18,000 over 3 years. What would be your monthly payment? ,$500.00 ,$512.05 ,$509.30 ,$618.70 ,,,,24. Book values vs Market values: ,1. In preparing a balance sheet, why do you think standard accounting practice focuses on historical cost rather than market value? ,2. Under standard accounting rules, it is possible for a company’s liabilities to exceed its assets. When this occurs, the owners’ equity is negative. Can this happen with market value? Why or why not?,,,,25. What are the five groups of ratios? Give two or three examples of each kind. ,,,,26. Turnover ratios all have one or two figures as the numerator. What are these two figures? What do these ratios measure? How do you interpret the results? ,,,,27. What are SIC codes and how might they be useful? ,,,,28. Return on assets, or ROA, can be expressed as the product of two ratios. Which two? ,,,,29. What is a balloon payment? How do you determine its value?,,,,30. What is an interest only loan? What is a pure discount loan? Explain. "

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