final exam prep: test 2 Flashcards
t/f If a person buys a stock for $10 and sells it after 10 years for $20, the annual compound return is 10%
False
The future value of a dollar
increases with higher interest rates
increases with longer periods of time
Discounting is
the determination of future value
expressing the present in the future
t/f Compounding refers to the earning of interest on interest
True
t/f Even if the interest rate is only 1%, a lump sum of $1000 today is preferred to $100 a year for 10 years
True
t/f The present value of an annuity is worth more if interest rates are 5% instead of 10%
True
Which of the following is the smallest if the interest rate is 12% annually
the present value of $100 received after three years
A diversified portfolio
reduces unsystematic risk
Sources of risk include
fluctuations in stock prices
inflation
possibility of bankruptcy
Which of the following is not a source of systematic risk
how a firm finances its assets
t/f the slower receivables turn over, the more funds the firm has tied up in accounts receivable
True
t/f Time series analysis refers to comparing a firm to other firm in its industry
False
t/f The lower the ratio of debt to total assets, the smaller is the use of financial leverage
True
The ability of firms to meet their short term obligations is measured by
Turnover ratios
t/f The higher the “times interest earned,” the safer should be interest payments
True
