FINA 3000 Pope UGA Test 1 Question
and answers correctly solved
T/F: A perpetuity is an annuity that never ends. - correct answers True
T/F: When a borrower makes extra payments to principal, interest payments
are accelerated to make up for losses to the bank. - correct answers False
T/F: One result of increasing leverage is that shareholders will expect a
greater return on their investment because their position is now riskier. -
correct answers True
T/F: For an investor, there is greater risk in forming a sole proprietorship
versus a corporation. - correct answers True.
Corporations give investors limited liability whereas sole proprietorships, the
sole investor has all the risk and return.
T/F: If we increase the interest rate, the present value of an ordinary annuity
increases. - correct answers False
the present value will decrease!!
T/F: As the number of periods increases, present value decreases - correct
answers True
FUTURE value would increase!!
, T/F: A zero coupon bond is considered a discount bond. - correct answers
True
T/F: A bond that matures in ten years would have a greater interest rate risk
than a bond that matures in five years. - correct answers True
T/F: Suppose that Moody's changes the credit rating for Big Cat Fireworks
from BBB to BB. We would expect the price of Big Cat bonds to increase. -
correct answers False.
Their credit worthiness rating has gone down, meaning that they are less
likely to pay back their creditors. therefore, their stock price would go DOWN
Suppose that Moody's upgrades the credit rating on Disney bonds from AA to
AAA. We would expect the coupon rate on future Disney bonds to be lower. -
correct answers True
risk goes in hand with returns --> when credit ratings are higher, risk is
lowered, so the coupon rate/return is lower too
T/F: For an annuity due, each payment is received one period sooner than
with an ordinary annuity. - correct answers True
T/F: Suppose you are looking at two different car loans. One offers a term of
60 payments while the other offers a term of 84 payments. Both loans have
the same annual percentage rate (APR). It is true that you will pay more
interest with the 84 payment loan (assuming same priced car). - correct
answers True
as the number of payments increase, you will pay more in interest!
and answers correctly solved
T/F: A perpetuity is an annuity that never ends. - correct answers True
T/F: When a borrower makes extra payments to principal, interest payments
are accelerated to make up for losses to the bank. - correct answers False
T/F: One result of increasing leverage is that shareholders will expect a
greater return on their investment because their position is now riskier. -
correct answers True
T/F: For an investor, there is greater risk in forming a sole proprietorship
versus a corporation. - correct answers True.
Corporations give investors limited liability whereas sole proprietorships, the
sole investor has all the risk and return.
T/F: If we increase the interest rate, the present value of an ordinary annuity
increases. - correct answers False
the present value will decrease!!
T/F: As the number of periods increases, present value decreases - correct
answers True
FUTURE value would increase!!
, T/F: A zero coupon bond is considered a discount bond. - correct answers
True
T/F: A bond that matures in ten years would have a greater interest rate risk
than a bond that matures in five years. - correct answers True
T/F: Suppose that Moody's changes the credit rating for Big Cat Fireworks
from BBB to BB. We would expect the price of Big Cat bonds to increase. -
correct answers False.
Their credit worthiness rating has gone down, meaning that they are less
likely to pay back their creditors. therefore, their stock price would go DOWN
Suppose that Moody's upgrades the credit rating on Disney bonds from AA to
AAA. We would expect the coupon rate on future Disney bonds to be lower. -
correct answers True
risk goes in hand with returns --> when credit ratings are higher, risk is
lowered, so the coupon rate/return is lower too
T/F: For an annuity due, each payment is received one period sooner than
with an ordinary annuity. - correct answers True
T/F: Suppose you are looking at two different car loans. One offers a term of
60 payments while the other offers a term of 84 payments. Both loans have
the same annual percentage rate (APR). It is true that you will pay more
interest with the 84 payment loan (assuming same priced car). - correct
answers True
as the number of payments increase, you will pay more in interest!
