UGA FINA 3000 FINAL EXAM STUDY
GUIDE 100% ACCURATE RATED A+
A mortgage is typically set up as an annuity due. - ANSWERFalse
If we increase the leverage for a firm, we are basically increasing the percentage of debt
on the balance sheet. - ANSWERTrue
Good firm strategy would maximize the current ratio to keep all creditors happy. -
ANSWERFalse
The interest paid each payment in an amortized loan in constant. - ANSWERFalse
In class, we suggested that a perpetuity is the correct formula to value a share of
preferred stock. - ANSWERTrue
If the yield to maturity is less than the coupon rate, we say that a bond trades at a
premium. - ANSWERTrue
The effective annual rate is only equal to the annual percentage rate if the compound
frequency is 1. - ANSWERTrue
With the finite stock model, we assume future dividends and a future selling price. -
ANSWERTrue
For two stock portfolio, our lowest portfolio risk would come from two stock returns that
have zero correlation. - ANSWERFalse
Our second time value of money rule states that we must adjust the payment to match
the timing of the interest rate. - ANSWERFalse
An investor builds a three-asset portfolio by purchasing 100 shares of Alpha
Corporation, 200 shares of Bravo Corporation, and 125 shares of Charlie Corporation.
Based on our portfolio equation, we can definitely say the largest weight in our portfolio
will be for Bravo Corporation. - ANSWERFalse
If we increase the interest rate, the present value of an investment decreases (all else
equal). - ANSWERTrue
Suppose that Dunkin announces they expected an increase in the supply chain risk
going forward. Our dividend model suggests that investors will want an increased return
due to the risk. This will result in a drop in the current stock price. - ANSWERTrue
, In determining the portfolio risk of a 20 asset portfolio, the individual variances are more
important than the covariance terms. - ANSWERFalse
In our current event, AirBnb had a higher market value at the time of their IPO than prior
to the COVID pandemic. - ANSWERTrue or false
In our current event, Bucees used a cascading strategy to expand the number of large
stores throughout the Southeast. They would build a store, then use the profits from the
store to finance the next store. - ANSWERFalse
The average credit card owner has more than $6,000 in unpaid charges on their
account. - ANSWERTrue
Some Tesla car owners that have loans for their purchase may be "upside down" on
their loan. This means that they have negative equity on the loan. - ANSWERTrue
The FDIC decided to only insure deposits at Silicon Valley Bank up to $250,000 which
led to a bank run. - ANSWERFalse
In the financial crisis current event, the hedge fund managers wanted to "short" the
housing market. - ANSWERTrue
What answer does NOT correctly describe one of the guiding principles of finance?
a. Firms maximize wealth
b. A dollar today is worth more than a dollar tomorrow
c. The greater the risk of an opportunity, then the greater expected return on the
opportunity (all else equal)
d. If we increase the leverage for a firm, shareholder risk and expected return both
increase
e. Diversification reduces overall risk but is not a good investment strategy. -
ANSWERE
An investment pays a cash flow in exactly one year. The cash flows will increase by a
constant percentage each year for 10 years. To value this investment today, which
formula is the correct one to use?
a. PV of a Lump Sum
b. PV of a Growing Annuity
c. PV of an Annuity
d. PV of an Annuity Due
e. PV of a Growing Annuity - ANSWERE
The US Treasury issues zero-coupon bonds to finance the government budget. The
face value on each bond is $1,000, and there are positive interest rates in the economy.
Which statement is NOT true regarding this issue?
a. The initial bond price will be less than $1,000.
b. The bond trades at a discount.
GUIDE 100% ACCURATE RATED A+
A mortgage is typically set up as an annuity due. - ANSWERFalse
If we increase the leverage for a firm, we are basically increasing the percentage of debt
on the balance sheet. - ANSWERTrue
Good firm strategy would maximize the current ratio to keep all creditors happy. -
ANSWERFalse
The interest paid each payment in an amortized loan in constant. - ANSWERFalse
In class, we suggested that a perpetuity is the correct formula to value a share of
preferred stock. - ANSWERTrue
If the yield to maturity is less than the coupon rate, we say that a bond trades at a
premium. - ANSWERTrue
The effective annual rate is only equal to the annual percentage rate if the compound
frequency is 1. - ANSWERTrue
With the finite stock model, we assume future dividends and a future selling price. -
ANSWERTrue
For two stock portfolio, our lowest portfolio risk would come from two stock returns that
have zero correlation. - ANSWERFalse
Our second time value of money rule states that we must adjust the payment to match
the timing of the interest rate. - ANSWERFalse
An investor builds a three-asset portfolio by purchasing 100 shares of Alpha
Corporation, 200 shares of Bravo Corporation, and 125 shares of Charlie Corporation.
Based on our portfolio equation, we can definitely say the largest weight in our portfolio
will be for Bravo Corporation. - ANSWERFalse
If we increase the interest rate, the present value of an investment decreases (all else
equal). - ANSWERTrue
Suppose that Dunkin announces they expected an increase in the supply chain risk
going forward. Our dividend model suggests that investors will want an increased return
due to the risk. This will result in a drop in the current stock price. - ANSWERTrue
, In determining the portfolio risk of a 20 asset portfolio, the individual variances are more
important than the covariance terms. - ANSWERFalse
In our current event, AirBnb had a higher market value at the time of their IPO than prior
to the COVID pandemic. - ANSWERTrue or false
In our current event, Bucees used a cascading strategy to expand the number of large
stores throughout the Southeast. They would build a store, then use the profits from the
store to finance the next store. - ANSWERFalse
The average credit card owner has more than $6,000 in unpaid charges on their
account. - ANSWERTrue
Some Tesla car owners that have loans for their purchase may be "upside down" on
their loan. This means that they have negative equity on the loan. - ANSWERTrue
The FDIC decided to only insure deposits at Silicon Valley Bank up to $250,000 which
led to a bank run. - ANSWERFalse
In the financial crisis current event, the hedge fund managers wanted to "short" the
housing market. - ANSWERTrue
What answer does NOT correctly describe one of the guiding principles of finance?
a. Firms maximize wealth
b. A dollar today is worth more than a dollar tomorrow
c. The greater the risk of an opportunity, then the greater expected return on the
opportunity (all else equal)
d. If we increase the leverage for a firm, shareholder risk and expected return both
increase
e. Diversification reduces overall risk but is not a good investment strategy. -
ANSWERE
An investment pays a cash flow in exactly one year. The cash flows will increase by a
constant percentage each year for 10 years. To value this investment today, which
formula is the correct one to use?
a. PV of a Lump Sum
b. PV of a Growing Annuity
c. PV of an Annuity
d. PV of an Annuity Due
e. PV of a Growing Annuity - ANSWERE
The US Treasury issues zero-coupon bonds to finance the government budget. The
face value on each bond is $1,000, and there are positive interest rates in the economy.
Which statement is NOT true regarding this issue?
a. The initial bond price will be less than $1,000.
b. The bond trades at a discount.
