Question 1.$10,000 will be received exactly 10 years from today. The following statement is true:

- If the interest rate increases, so does the present value of the $10,000.
- If the interest rate increases, the present value of the $10,000 decreases.
- It is worth $10,000 today.
- It will have a present value greater than $10,000.

Question 2.We would expect that, all else being equal, investors would pay less for a stock that they view as having become more risky. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 14% rate. The constant dividend growth rate is 4%. What would the stock price be?

- $14.29
- $20.00
- $20.80
- $28.57

Question 3.Simple interest means that:

- the interest rate is the same every period.
- the dollar amount of interest is the same every period.
- interest is only paid once a year.
- the compounding periods are annual.

Question 4.Which of the following is true of the structure of a zero-coupon bond?

- an annuity of interest payments and a single principal payment at maturity
- no interim interest payments but a variable payment at maturity, depending on interest rates
- an annuity of payments comprised of both interest and principal
- no interim interest payments and a single payment at maturity

Question 5.The cash flows for a perpetuity continue into the future indefinitely. An example of a perpetuity is:

- preferred stock.
- corporate bonds.
- a home mortgage.
- a consumer loan.

Question 6.The name “annuity” suggests annual payments, but in fact we apply the term to:

- any set of payments of the same dollar amount irrespective of timing.
- any set of monthly payments.
- any set of regularly spaced payments of the same dollar amount.
- any set of multiple payments.

Question 7.The payment structure of a corporate bond is best thought of as:

- an annuity of interest payments.
- an annuity of principal and interest payments.
- an annuity of principal payments.
- an annuity of interest payments and a single principal payment at maturity.

Question 8.In an amortized loan:

- the payments are the same every period, but the proportion that is interest increases.
- the payments are the same every period, and the proportion that is interest also is unchanged.
- the payments vary every period, but the proportion that is interest doesn’t change.
- the payments are the same every period, but the proportion that is interest decreases.

Question 9.In an amortized loan, the principal portion:

- increases with every payment and is zero with the last payment.
- increases with every payment and completely repays the loan with the last payment.
- increases with every payment but at a decreasing rate.
- does not change with every payment.

Question 10.We would expect that, all else being equal, investors would pay more for a stock with a higher dividend growth rate. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 6% rate. The required rate of return is 11%. What would the stock price be?

- $29.71
- $31.71
- $40.00
- $42.40

- 5 years ago

**BUS 401 Week 2 Quiz - All Questions Answered Correctly**

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