UNL Fina 361 Final With 63 ques ons and answers New
Edi on
One problem with IRR is that - Ans It does not take into account the size of the project
When the IRR is greater than the WACC, the NPV - Ans posi#ve
If the WACC increases, all else equal, a project is _________ likely to be accepted - Ans more
All assets poten#ally give return to their owners from which two sources? - Ans Income and
Capital Gain/Loss
At maturity the bond's price is equal to.... - Ans par value, because the price of any asset is the
PV of its expected cash-flows
If two annui#es are iden#cal in every way except that one is an "ordinary" annuity and the
other is an "annuity due", the annuity due will sell at a ___________ price because its cash-
flows come ___________. - Ans higher; sooner
When a loan is ini#ally made, the dollar amount of the loan should equal - Ans the present
value of the loan payments where the discount rate used is the interest rate on the loan
The cash-flows of a typical bond correspond to which TVM concepts? - Ans the PV of an
annuity PLUS the PV of a lump sum
At maturity a bond will sell_________ - Ans at its par value
If a bond is selling at a PREMIUM and the yield to maturity (YTM) on the bond stays constant
for the bond's life, then the bond's price will _____________ - Ans fall during the bond's life
, All else equal, when interest rates rise, asset prices _______________ - Ans fall
If a bond is held to maturity, then its price risk will be - Ans zero
When interest rates decrease, the "price risk" ____________ the bondholder AND the
"reinvestment risk" _________________ the bondholder - Ans benefits; hurts
There are actually many interest rates in the economy. However, we can talk about THE interest
rate because - Ans Interest rates tend to move together, that is, when one interest rate
increases all of them tend to increase and when one interest rate decreases all of them tend to
decrease.
Where you save (i.e., the assets you invest in) depends on - Ans your risk aversion and the risk
characteris#cs of the asset
If investors become MORE risk averse, risk premiums will - Ans increase
Assets that are NOT liquid tend to be - Ans Heterogeneous
According to the Life Cycle Hypothesis of savings, what happens to net wealth a=er re#rement?
- Ans Net wealth decreases.
Conceptually, interest is analogous to a - Ans rental fee
Why do households save? - Ans For future consump#on AND as a precau#on AND for
specula#on
Edi on
One problem with IRR is that - Ans It does not take into account the size of the project
When the IRR is greater than the WACC, the NPV - Ans posi#ve
If the WACC increases, all else equal, a project is _________ likely to be accepted - Ans more
All assets poten#ally give return to their owners from which two sources? - Ans Income and
Capital Gain/Loss
At maturity the bond's price is equal to.... - Ans par value, because the price of any asset is the
PV of its expected cash-flows
If two annui#es are iden#cal in every way except that one is an "ordinary" annuity and the
other is an "annuity due", the annuity due will sell at a ___________ price because its cash-
flows come ___________. - Ans higher; sooner
When a loan is ini#ally made, the dollar amount of the loan should equal - Ans the present
value of the loan payments where the discount rate used is the interest rate on the loan
The cash-flows of a typical bond correspond to which TVM concepts? - Ans the PV of an
annuity PLUS the PV of a lump sum
At maturity a bond will sell_________ - Ans at its par value
If a bond is selling at a PREMIUM and the yield to maturity (YTM) on the bond stays constant
for the bond's life, then the bond's price will _____________ - Ans fall during the bond's life
, All else equal, when interest rates rise, asset prices _______________ - Ans fall
If a bond is held to maturity, then its price risk will be - Ans zero
When interest rates decrease, the "price risk" ____________ the bondholder AND the
"reinvestment risk" _________________ the bondholder - Ans benefits; hurts
There are actually many interest rates in the economy. However, we can talk about THE interest
rate because - Ans Interest rates tend to move together, that is, when one interest rate
increases all of them tend to increase and when one interest rate decreases all of them tend to
decrease.
Where you save (i.e., the assets you invest in) depends on - Ans your risk aversion and the risk
characteris#cs of the asset
If investors become MORE risk averse, risk premiums will - Ans increase
Assets that are NOT liquid tend to be - Ans Heterogeneous
According to the Life Cycle Hypothesis of savings, what happens to net wealth a=er re#rement?
- Ans Net wealth decreases.
Conceptually, interest is analogous to a - Ans rental fee
Why do households save? - Ans For future consump#on AND as a precau#on AND for
specula#on
