FIN 480 FINAL EXAM QUESTIONS AND ANSWERS
NPV Decrease - Answers - Increasing the amount of the initial cash investment
Increase in the discount rate
Decreasing the final period's cash flow
Receiving a period's cash flows later than expected
NPV Increase - Answers - Decrease in the discount rate
Decreasing the amount of the initial cash investment
Increasing the final period's cash flow
Having all future cash flows occur in the first year vs. evenly spaced over 5 years
During a so-called "flight to safety" the price of U.S. treasuries tends to _______ while
the prices of risky bonds tends to _____. - Answers - Increase, decrease
During a so-called "flight to safety" the yield of U.S. Treasuries tends to _____, while the
yield of risky assets tends to ______. - Answers - Decrease, increase
During a so-called "flight to safety" the yield on U.S. Treasuries tends to ______ while
the prices of the U.S. Treasuries tends to ______. - Answers - Decrease, increase
In general, the ______ a bond rating, the ____ the risk of default. - Answers - Lower,
Higher
Higher, Lower
Which of the following is true? a. Leverage increases expected return and increases
risk.
b. Leverage increases expected return but has no effect on risk.
c. Leverage decreases expected return and increases risk.
d. Leverage has no effect on expected return but increases risk. - Answers - Leverage
increase expected return and increases risk.
A 1-year bond has _____ than a 20-year bonds, and ____ than a 10-year bond. -
Answers - Less interest rate risk; less interest rate risk
A 10-year bond has ____ than a 20-year bond. A 10-year bond has ____ than a 1-year
bond. - Answers - Less interest rate risk; more inflation risk
A 10-year Treasury bond has ____ than a 30-year Treasury bond and ____ than a 10-
year corporate bond. - Answers - Less interest rate risk; less default risk
If a bond is upgraded, we would expect the price to ___ and the yield to ____.
we would expect the demand for this bond to ____; we would expect the risk premium
to ____. - Answers - rise; fall
NPV Decrease - Answers - Increasing the amount of the initial cash investment
Increase in the discount rate
Decreasing the final period's cash flow
Receiving a period's cash flows later than expected
NPV Increase - Answers - Decrease in the discount rate
Decreasing the amount of the initial cash investment
Increasing the final period's cash flow
Having all future cash flows occur in the first year vs. evenly spaced over 5 years
During a so-called "flight to safety" the price of U.S. treasuries tends to _______ while
the prices of risky bonds tends to _____. - Answers - Increase, decrease
During a so-called "flight to safety" the yield of U.S. Treasuries tends to _____, while the
yield of risky assets tends to ______. - Answers - Decrease, increase
During a so-called "flight to safety" the yield on U.S. Treasuries tends to ______ while
the prices of the U.S. Treasuries tends to ______. - Answers - Decrease, increase
In general, the ______ a bond rating, the ____ the risk of default. - Answers - Lower,
Higher
Higher, Lower
Which of the following is true? a. Leverage increases expected return and increases
risk.
b. Leverage increases expected return but has no effect on risk.
c. Leverage decreases expected return and increases risk.
d. Leverage has no effect on expected return but increases risk. - Answers - Leverage
increase expected return and increases risk.
A 1-year bond has _____ than a 20-year bonds, and ____ than a 10-year bond. -
Answers - Less interest rate risk; less interest rate risk
A 10-year bond has ____ than a 20-year bond. A 10-year bond has ____ than a 1-year
bond. - Answers - Less interest rate risk; more inflation risk
A 10-year Treasury bond has ____ than a 30-year Treasury bond and ____ than a 10-
year corporate bond. - Answers - Less interest rate risk; less default risk
If a bond is upgraded, we would expect the price to ___ and the yield to ____.
we would expect the demand for this bond to ____; we would expect the risk premium
to ____. - Answers - rise; fall
