What is the difference between the current ratio and the quick ratio? - ANS Inventory is excluded in the calculation of the quick ratio. What is the term for the risk that changes in interest rates will impact the value of a bond? - ANS Interest rate risk What is used to measure total risk? - ANS Standard deviation What is the term for the return over the entire period that an investor owns a financial security? - ANS Holding period return You signed an apartment contract today. You are going to pay $1,500 at the beginning of each month for the next 12 months, starting today. What type of cash flows is this contract? - ANS An annuity due What is the rate at which the average price level of particular goods and services in an economy increases over a period of time? - ANS Inflation rate Which type of interest rate includes interest on interest in addition to interest on the principal? - ANS Compound interest What is the difference between return on assets (ROA) and return on equity (ROE)? - ANS ROE considers the capital structure of a company, while ROA does not. What does high inventory turnover relative to the industry and competitors indicate? - ANS The firm does not hold enough inventory and is making its customers wait longer to receive their purchased goods. What is the ratio that tells you on average how long it takes for a firm to collect accounts receivable? - ANS Average collection period Three different names are used for interest rate for different purposes and perspectives: - ANS discount rate, required rate, and cost of capital. Simple interest is the interest only on the principal, while compound interest is the interest on the principal plus the interest on earned interest. - ANS What is the main purpose of charging interest? - ANS It allows borrowers to pay to use the assets of another entity to accomplish their own goals.
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