BUS1 170 Exam 2 Final Questions AND Correct Answers
(T/F)A certificate of deposit that pays 9.8%
compounded monthly is better than a similar certificate
of deposit that pays 10% compounded only once per
year. - ✔✔T
(T/F)A SAFE (Simple Agreement for Future Equity) offers
the investor the opportunity to acquire equity in a
company at a premium to the next round price. - ✔✔F
(T/F)An investment earning simple interest is preferred
over an investment earning compound interest because
the simplicity adds value. - ✔✔F
(T/F)If the required rate of return (current interest rate)
exceeds the bond's coupon rate, the bond will sell
below par value or at a discount. - ✔✔T
(T/F)Joe borrowed $10,000 at 10% per year and
promised to pay it back in equal annual installments of
principal and interest at the end of each of the next 5
, years. Joe's annual payment will be $3,000 using the
formula $3,000 = [($10,000/5) + ($10,000 x 10%) - ✔✔F
(T/F)Small company stocks have historically had higher
average annual returns than large company stocks, and
also a higher risk premium. - ✔✔T
(T/F)Subordinated debentures are more risky than
unsubordinated debentures because the claims of
subordinated debenture holders are less likely to be
honored in the event of liquidation. - ✔✔T
(T/F)The definition of the pre-money valuation for a
company that is undertaking a round of equity is equal
to the post-money valuation less the amount of the
invested cash. - ✔✔T
(T/F)The expected yield on junk bonds is higher than
the yield on AAA-rated bonds because of the higher
default risk associated with junk bonds. - ✔✔T
(T/F)A certificate of deposit that pays 9.8%
compounded monthly is better than a similar certificate
of deposit that pays 10% compounded only once per
year. - ✔✔T
(T/F)A SAFE (Simple Agreement for Future Equity) offers
the investor the opportunity to acquire equity in a
company at a premium to the next round price. - ✔✔F
(T/F)An investment earning simple interest is preferred
over an investment earning compound interest because
the simplicity adds value. - ✔✔F
(T/F)If the required rate of return (current interest rate)
exceeds the bond's coupon rate, the bond will sell
below par value or at a discount. - ✔✔T
(T/F)Joe borrowed $10,000 at 10% per year and
promised to pay it back in equal annual installments of
principal and interest at the end of each of the next 5
, years. Joe's annual payment will be $3,000 using the
formula $3,000 = [($10,000/5) + ($10,000 x 10%) - ✔✔F
(T/F)Small company stocks have historically had higher
average annual returns than large company stocks, and
also a higher risk premium. - ✔✔T
(T/F)Subordinated debentures are more risky than
unsubordinated debentures because the claims of
subordinated debenture holders are less likely to be
honored in the event of liquidation. - ✔✔T
(T/F)The definition of the pre-money valuation for a
company that is undertaking a round of equity is equal
to the post-money valuation less the amount of the
invested cash. - ✔✔T
(T/F)The expected yield on junk bonds is higher than
the yield on AAA-rated bonds because of the higher
default risk associated with junk bonds. - ✔✔T
