AGEC 4040 Final Exam Questions With
All Correct Answers
Finance can be defined as - Answer-the art and science of managing money
/.The primary goal of the financial manager is - Answer-maximize wealth
/.The key role of the financial manager is - Answer-decision making
/.The conflict between the goals of a firm's owners and the goals of its non-owner
managers is - Answer-the agency problem
/.When home prices are falling we would expect - Answer-high mortgage default rates
/.________ probability distribution shows all possible outcomes and associated
probabilities for a given event. - Answer-A continuous
/.A firm has an expected dividend next year of $1.20 per share, a zero growth rate of
dividends, and a required return of 10 percent. The value of a share of the firm's
common stock is ________. - Answer-$12
/.A behavioral approach that evaluates the impact on the firm's return of simultaneous
changes in a number of project variables is called - Answer-scenario analysis
/.In the context of capital budgeting, risk generally refers to - Answer-the degree of
variability of the cash inflows.
/.In comparing the internal rate of return and net present value methods of evaluation, -
Answer-net present value is theoretically superior, but financial managers prefer to use
internal rate of return.
/.The cost of capital reflects the cost of funds - Answer-over a long-run time period
/.The Farm Credit System - Answer-is a type of a cooperative
/.If a young, a beginning farmer is willing to accept supervision and guidance in his
activities, he/she is most likely to be able to get credit from _______ _. - Answer-the
Farm Service Agency
/.The future value of $100 received today and deposited at 6 percent for four years is -
Answer-$126
, /.Combining two negatively correlated assets to reduce risk is known as - Answer-
Diversification
/.The main idea behind the time value of money is that a dollar today is worth more than
a dollar in the future because ________. - Answer-investors can earn a return on
money they have today and thereby have more money in the future
/.The rate of interest actually paid or earned, also called the annual percentage rate
(APR), is the________ interest rate. - Answer-Effective
/.The present value of a perpetual income stream increases when the discount rate
________. - Answer-decreases
/.Corporate bonds usually have a ________. - Answer-a par value of $1,000
/.The less certain a cash flow, the ________ the risk, and the ________ the present
value of the cashflow. - Answer-higher; lower
/.Because equity holders are the last to receive any distribution of assets as a result of
bankruptcy proceedings, they expect ________. - Answer-greater returns from their
investment than the return that bondholders expect
/.Which of the following is an advantage for a firm to issue common stock over long-
term debt? - Answer-no maturity date on which the par value of the issue must be
repaid
/.The ________ rate of interest is the rate that balances the supply of savings and the
demand for investment funds. - Answer-Equilibrium
/.Dividends paid to stockholders are tax deductible. - Answer-This is false, dividends
paid to stockholders are NOT tax deductible.
/.The constant growth model is an approach to dividend valuation that assumes a
constant future dividend. - Answer-This is false, the constant growth model does not
assume a constant future dividend.
/.Unsystematic risk is the relevant portion of an asset's risk attributable to market factors
that affect all firms. - Answer-This is false, unsystematic risk are not relevant.
/.Diversified investors should be concerned solely with non-diversifiable risk because
they can easily create a portfolio of assets that will eliminate all, or virtually all,
diversifiable risk. - Answer-This is true, diversified investors should be concerned solely
with non-diversifiable risk because they can easily create a portfolio of assets that will
eliminate all, or virtually all, diversifiable risk.
All Correct Answers
Finance can be defined as - Answer-the art and science of managing money
/.The primary goal of the financial manager is - Answer-maximize wealth
/.The key role of the financial manager is - Answer-decision making
/.The conflict between the goals of a firm's owners and the goals of its non-owner
managers is - Answer-the agency problem
/.When home prices are falling we would expect - Answer-high mortgage default rates
/.________ probability distribution shows all possible outcomes and associated
probabilities for a given event. - Answer-A continuous
/.A firm has an expected dividend next year of $1.20 per share, a zero growth rate of
dividends, and a required return of 10 percent. The value of a share of the firm's
common stock is ________. - Answer-$12
/.A behavioral approach that evaluates the impact on the firm's return of simultaneous
changes in a number of project variables is called - Answer-scenario analysis
/.In the context of capital budgeting, risk generally refers to - Answer-the degree of
variability of the cash inflows.
/.In comparing the internal rate of return and net present value methods of evaluation, -
Answer-net present value is theoretically superior, but financial managers prefer to use
internal rate of return.
/.The cost of capital reflects the cost of funds - Answer-over a long-run time period
/.The Farm Credit System - Answer-is a type of a cooperative
/.If a young, a beginning farmer is willing to accept supervision and guidance in his
activities, he/she is most likely to be able to get credit from _______ _. - Answer-the
Farm Service Agency
/.The future value of $100 received today and deposited at 6 percent for four years is -
Answer-$126
, /.Combining two negatively correlated assets to reduce risk is known as - Answer-
Diversification
/.The main idea behind the time value of money is that a dollar today is worth more than
a dollar in the future because ________. - Answer-investors can earn a return on
money they have today and thereby have more money in the future
/.The rate of interest actually paid or earned, also called the annual percentage rate
(APR), is the________ interest rate. - Answer-Effective
/.The present value of a perpetual income stream increases when the discount rate
________. - Answer-decreases
/.Corporate bonds usually have a ________. - Answer-a par value of $1,000
/.The less certain a cash flow, the ________ the risk, and the ________ the present
value of the cashflow. - Answer-higher; lower
/.Because equity holders are the last to receive any distribution of assets as a result of
bankruptcy proceedings, they expect ________. - Answer-greater returns from their
investment than the return that bondholders expect
/.Which of the following is an advantage for a firm to issue common stock over long-
term debt? - Answer-no maturity date on which the par value of the issue must be
repaid
/.The ________ rate of interest is the rate that balances the supply of savings and the
demand for investment funds. - Answer-Equilibrium
/.Dividends paid to stockholders are tax deductible. - Answer-This is false, dividends
paid to stockholders are NOT tax deductible.
/.The constant growth model is an approach to dividend valuation that assumes a
constant future dividend. - Answer-This is false, the constant growth model does not
assume a constant future dividend.
/.Unsystematic risk is the relevant portion of an asset's risk attributable to market factors
that affect all firms. - Answer-This is false, unsystematic risk are not relevant.
/.Diversified investors should be concerned solely with non-diversifiable risk because
they can easily create a portfolio of assets that will eliminate all, or virtually all,
diversifiable risk. - Answer-This is true, diversified investors should be concerned solely
with non-diversifiable risk because they can easily create a portfolio of assets that will
eliminate all, or virtually all, diversifiable risk.
