A.The inflation premium, when the real interest rate is 2% and the risk-free rate and risk premium are 5% and 3% respectively, is * 10% 8% 5% 3% B. Factors that influence the equilibrium interest rate are * Risk Liquidity preference Inflation All of the above C. A bond that has a Par value greater than its price is called * Discount bond Premium bond Par value bond All of the above D. Because equity holders are the last to receive any distributions, they expect greater returns to compensate them for the additional risk they bear. * True False E. Interest rate is the compensation paid by the lender of funds to the borrower. * True False F. Bonds issued by a corporation are * equity instruments long term debt instruments G. Debt holders claim on income and assets are * Senior to equity holders Subordinate to equity holders None of the above H. Funds provided by the firm’s owners (investors or stockholders) is called * Equity financing Debt financing Borrowed financing None of the above I. A portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position is called the * Prospectus Red herring Preliminary prospectus None of the above J. Bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price by an investment banker is called * Underwriting Processing Indenting Overwriting K. Rate that creates equilibrium between the supply of savings and the demand for investment funds in a perfect world is called * effective annual interest rate real rate of interest nominal interest rate risk free rate of interest L. Income bonds, subordinated debentures and debentures are examples of * secured bonds unsecured bonds M. Shares of common stock held by the firm which are repurchased are known as * Issued shares Treasury shares Ordinary shares Authorised shares N. A downward-sloping yield curve indicates that long-term interest rates are generally lower than short-term interest rates * False True S. Any action taken by the financial manager that increases the risk shareholders must bear will also increase the risk premium required by shareholders, and hence the required return. * True False

A.The inflation premium, when the real interest rate is 2% and the risk-free rate and risk premium are 5% and 3% respectively, is * 10% 8% 5% 3% B. Factors that influence the equilibrium interest rate are * Risk Liquidity preference Inflation All of the above C. A bond that has a Par value greater than its price is called * Discount bond Premium bond Par value bond All of the above D. Because equity holders are the last to receive any distributions, they expect greater returns to compensate them for the additional risk they bear. * True False E. Interest rate is the compensation paid by the lender of funds to the borrower. * True False F. Bonds issued by a corporation are * equity instruments long term debt instruments G. Debt holders claim on income and assets are * Senior to equity holders Subordinate to equity holders None of the above H. Funds provided by the firm’s owners (investors or stockholders) is called * Equity financing Debt financing Borrowed financing None of the above I. A portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position is called the * Prospectus Red herring Preliminary prospectus None of the above J. Bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price by an investment banker is called * Underwriting Processing Indenting Overwriting K. Rate that creates equilibrium between the supply of savings and the demand for investment funds in a perfect world is called * effective annual interest rate real rate of interest nominal interest rate risk free rate of interest L. Income bonds, subordinated debentures and debentures are examples of * secured bonds unsecured bonds M. Shares of common stock held by the firm which are repurchased are known as * Issued shares Treasury shares Ordinary shares Authorised shares N. A downward-sloping yield curve indicates that long-term interest rates are generally lower than short-term interest rates * False True S. Any action taken by the financial manager that increases the risk shareholders must bear will also increase the risk premium required by shareholders, and hence the required return. * True False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A.The inflation premium, when the real interest rate is 2% and the risk-free rate and risk premium are 5% and 3% respectively, is *

B. Factors that influence the equilibrium interest rate are *

Risk
Liquidity preference
Inflation
All of the above

C. A bond that has a Par value greater than its price is called *

Discount bond
Premium bond
Par value bond
All of the above

D. Because equity holders are the last to receive any distributions, they expect greater returns to compensate them for the additional risk they bear. *

True
False

E. Interest rate is the compensation paid by the lender of funds to the borrower. *

True
False

F. Bonds issued by a corporation are *

equity instruments
long term debt instruments

G. Debt holders claim on income and assets are *

Senior to equity holders
Subordinate to equity holders
None of the above

H. Funds provided by the firm’s owners (investors or stockholders) is called *

Equity financing
Debt financing
Borrowed financing
None of the above

I. A portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position is called the *

Prospectus
Red herring
Preliminary prospectus
None of the above

J. Bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price by an investment banker is called *

Underwriting
Processing
Indenting
Overwriting

K. Rate that creates equilibrium between the supply of savings and the demand for investment funds in a perfect world is called *

effective annual interest rate
real rate of interest
nominal interest rate
risk free rate of interest

L. Income bonds, subordinated debentures and debentures are examples of *

secured bonds
unsecured bonds

M. Shares of common stock held by the firm which are repurchased are known as *

Issued shares
Treasury shares
Ordinary shares
Authorised shares

N. A downward-sloping yield curve indicates that long-term interest rates are generally lower than short-term interest rates *

False
True

S. Any action taken by the financial manager that increases the risk shareholders must bear will also increase the risk premium required by shareholders, and hence the required return. *

True
False

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