AGEC 4040 EXAM QUESTIONS WITH FULLY SOLVED & UPDATED ANSWERS

AGEC 4040 EXAM QUESTIONS WITH FULLY SOLVED &
UPDATED ANSWERS.

1) In comparing an ordinary annuity and an annuity due, which of the following is true
t t t t t t t t t t t t t t




A) the future value of an ordinary annuity is always greater than the future value
t t t t t t t t t t t t t t




of an otherwise identical annuity due
t t t t t




B) all things being equal one would prefer to receive an ordinary annuity
t t t t t t t t t t t t




compared to an annuity due t t t t




C) the future value of an annuity due is always greater than the future value of an
t t t t t t t t t t t t t t t t




otherwise identical ordinary annuity t t t




D) the future value of an annuity due is always less than the future value of an
t t t t t t t t t t t t t t t t




otherwise identical ordinary annuity since one less payment is receive with an
t t t t t t t t t t t t




annuity due -- Correct Answer ✔✔ C) the future value of annuity due is always
t t t t t t t t t t t t t t




greater than the future value of an otherwise identical ordinary annuity
t t t t t t t t t t t




2) The future value of a dollar ________ as the interest rate increases and ________
t t t t t t t t t t t t t t




the farther in the future is the funds are to be received.
t t t t t t t t t t t




A) decreases; decreases. t




B) decreases; increases. t




C) increases; increases. t




D) increases; decreases. -- Correct Answer ✔✔ D) increases; decreases t t t t t t t t




3) _______ rate of interest creates equilibrium between the supply of savings and the
t t t t t t t t t t t t t




demand for investment funds
t t t




A) inflationary
B) risk free t




C) real
D) nominal -- Correct Answer ✔✔ C) real t t t t t t




4) Generally an increase in risk will result in_______. Hint use TVM basic formulas
t t t t t t t t t t t t t

, A) a lower return on investment
t t t t




B) a higher required return or interest rate
t t t t t t




C) a lower required return or interest rate
t t t t t t




D) a higher return on investment -- Correct Answer ✔✔ D) a higher return on
t t t t t t t t t t t t t t




investment

5) ________ rate of interest is actual rate charged by the supplier and paid by the
t t t t t t t t t t t t t t t




demanded of funds t t t




A) risk freet




B) nominal
C) real
D) inflationary -- Correct Answer ✔✔ B) nominal t t t t t t




6) A _______ is a graphic depiction between the maturity and rate of return for bonds
t t t t t t t t t t t t t t t




with similar risks
t t




A) risk return profile
t t




B) yield curve t




C) aggregate demand curve t t




D) supply function -- Correct Answer ✔✔ B) yield curve
t t t t t t t t




7) A_______ yield curve reflects higher expected future rates of interest
t t t t t t t t t




A) linear
B) downward sloping t t




C) upward sloping t




D) flat -- Correct Answer ✔✔ C) upward sloping
t t t t t t t




8) The key inputs to the valuation process include ______ hint think of most complete
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description t




A) returns and risk t t




B) cash flows and discount rate
t t t t




C) returns, discount rate, and risk t t t t

, D) cash flow, cash flow timing, and risk -- Correct Answer ✔✔ D) cash flow, cash
t t t t t t t t t t t t t t t




flow timing, and risk t t t




9) The value of any asset is the
t t t t t t




A) sum of all future cash flows it is expected to provide over the relevant time
t t t t t t t t t t t t t t t




period
B) present value of the sum of all future cash flows it is expected to provide over
t t t t t t t t t t t t t t t t




the relevant time period
t t t t




C) sum of all compounded future cash flows it is expected to provide over the
t t t t t t t t t t t t t t




relevant time period t t t




D) sum of the present values of all future cash flows it is expected to provide over
t t t t t t t t t t t t t t t t




the relevant time period -- Correct Answer ✔✔ B) present value of the sum of
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all future cash flows it is expected to provide over the relevant time period
t t t t t t t t t t t t t t




10) The basic valuation model, risk is generally incorporated into the
t t t t t t t t t




A) cash flows t




B) discount rate t




C) timing
D) total value -- Correct Answer ✔✔ A) cash flows
t t t t t t t t




11) A type of long term financing used by both corporation and governments entities is
t t t t t t t t t t t t t t




A) retained earnings t




B) bonds
C) common stock t




D) preferred stock -- Correct Answer ✔✔ B) bonds t t t t t t t




12) Corporate bonds have a t t t t




A) specified coupon rate paid annually t t t t




B) face value of $5,000t t t




C) par value of $1,000
t t t




D) market price of $1,000 -- Correct Answer ✔✔ A) specified coupon rate paid
t t t t t t t t t t t t t




annually