Sophia Finance Milestone 2a questions and answers exam docs 2021

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Sophia Finance Milestone 2a questions and answers exam docs 2021 Principles of Finance Milestone 2 1 Select the best definition of an ordinary annuity. An annuity whose payments can be made ... at any point during the period An annuity whose payments are made at the beginning of the period An annuity whose payments are made at the end of the period An annuity that makes payments forever CONCEPT Annuities 2 Bill wants to buy a bond whose face value is substantially higher than its market price. What kind of bond should he buy? Inflation-linked Asset-backed Zero-coupon Government CONCEPT Types of Bonds 3 Which of the following is a disadvantage of bonds for a potential investor? They have less legal protection than stocks. Bondholders risk a significant price drop if a large number of bonds are sold at once. Some bonds can be redeemed early by the issuer. They are more likely than stocks to end up valueless if a company goes bankrupt. CONCEPT Advantages and Disadvantages of Bonds 4 Select the pairing that is correctly matched. Common stock: may only be sold on the secondary market Preferred stock: the value of the stock is not affected by market factors Common stock: usually has a pre-negotiated dividend Preferred stock: stockholders' claim to assets is subordinate to that of debtholders CONCEPT Rules and Rights of Common and Preferred Stock 5 Select the statement that correctly explains the relationship between interest rates and present or future value. The interest rate and the present value of an investment are directly related. Assuming other variables stay the same, if the interest rate decreases, the present value of an investment decreases. Assuming other variables stay the same, if the interest rate increases, the future value of an investment decreases. Assuming other variables stay the same, if the interest rate increases, the present value of an investment decreases. CONCEPT Additional Detail on Present and Future Values 6 Select the true statement about default risk. Default risk relates to a bond's periodic coupon payments, but not to its maturity payment. Bondholders are guaranteed to be repaid in full if a company enters bankruptcy. Bondholders have a degree of legal protection against default risk, but it is not comprehensive. It is the risk that the bond's price will fall below its par value. CONCEPT Bond Risk 7 Determine the value of a stock with the following variables using the constant growth model: Current annual dividend: $1.30 per share Required return rate: 7% Constant growth rate: 5% $65.00 $63.75 $68.25 $69.55 CONCEPT Stock Valuation 8 You deposit $7,000 in a bank account that earns 2% compound interest annually. What is the value of your $7,000 in four years? $6,440 $7,560 $7,577 $6,423 CONCEPT Future Value, Single Cash Flows 9 Which of the following accurately describes a normal yield curve? A negatively sloping curve that indicates confidence in rising inflation in the future. A positively sloping curve that indicates the expectation that inflation will fall in the future. A positively sloping curve that indicates confidence in sustained economic growth in the future. A negatively sloping curve that indicates the expectation that the economy will contract in the future. CONCEPT The Basics of Interest Rates 10 In calculating the yield of an investment, what is the relationship between APR and APY? APR and APY are two ways of expressing the same measurement of yield. APR can be higher or lower than the APY of a compounding investment, depending on how high the interest rate is. APR is always slightly higher than APY if an investment is earning compounding interest. APR is always slightly lower than APY if an investment is earning compounding interest. CONCEPT Yield 11 Which of the following is true for calculating the present value of multiple cash flows? The PV of multiple cash flows is the sum of the FV of each individual cash flow divided by the interest rate. You can only find the PV of multiple cash flows if they originate at the same time. All of the cash flows must be discounted to the same point in time. It is more complex to find the PV of annuities than the PV of irregular cash flows. CONCEPT Valuing Multiple Cash Flows 12 Because a bond is a legal contract, what could happen if a borrower fails to meet their obligation? The borrower could face bankruptcy proceedings. The lender could then own the bond outright. The bond could be reevaluated by a rating agency. The borrower could be required to prepare an offering memorandum. CONCEPT Understanding Bonds 13 Nadia is going to receive $1,000 from her grandparents next year. According to the time value of money, the gift of $1,000 is worth __________ a gift of $1,000 if she received it today. less than more than the same as twice as much as CONCEPT Introduction to the Time Value of Money 14 Consider what you have learned about valuing bonds. A: Coupon rate = 4.5%, YTM = 5.2% B: Coupon rate = 5%, YTM = 4.5% C: Coupon rate = 3.5%, YTM = 3.75% D: Coupon rate = 4%, YTM = 4% Which of the bonds is selling at par? B C D A CONCEPT Valuing Bonds 15 Chen purchased a 30-year corporate bond in 2018 that promised to pay him 4% interest semi-annually for the life of the loan. The corporation reserved the right to redeem the bond in 2038. Which of those numbers represents the bond's call feature? 2038 2018 30 4 CONCEPT Key Characteristics of Bonds 16 Which descriptor relates to the income approach for valuing corporations? Involves the capital asset pricing model Estimates the cost of replacing a company's resources Multiplies the share price by the number of shares outstanding Reflects the equilibrium between buyers and sellers of company stock CONCEPT Valuing the Corporation 17 Select the statement that is true of common stock. Common stock has a stronger claim to a company's assets than preferred stock. Companies issue dividends to common stockholders before preferred stockholders. Common stockholders do not have a right of first refusal when new stock is issued. Despite having fewer financial protections, common stock typically outperforms preferred stock. CONCEPT Types of Stock 18 Preemptive rights allow stockholders to acquire __________ before the general public. preexisting shares company assets dividends new stock CONCEPT Defining Stock 19 You would like to have $10,000 in an account after eight years’ time. If the account earns 2.5% compounded interest yearly, how much would you have to deposit today? $9,464 $9,765 $8,207 $8,333 CONCEPT Present Value, Single Cash Flows 20 A corporation that makes shares of stock available for the public to purchase is an example of an __________. investment trust investor issuer intermediary CONCEPT Stock Markets [Show More]

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