Finance 3000 True/False

A perpetuity is an annuity that never ends.

True

When a borrower makes extra payments to principal, the size of the required annuity payment for the remaining loan term is reduced.

True

One result of increasing leverage is that shareholders will expect a greater return on their investment.

True

In Caspian Sea, the main character is seeking an internship with McDonalds.

False

For an investor, there is greater risk in forming a sole proprietorship versus a corporation.

True

If we increase the interest rate, the present value of an ordinary annuity increases.

False

A zero coupon bond is considered a discount bond.

True

A bond that matures in ten years would have a greater interest rate risk than a bond that matures in five years.

True

In Caspian Sea, the investing club run by the retirement group represents an angel investor.

True

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).

True

For an annuity due, each payment is received one period sooner than with an ordinary annuity.

True

It is easier to transfer ownership in a corporation than a sole proprietorship.

True

As the rate of interest increases, the PV of a lump sum decreases.

True

The amount of interest paid in an amortized loan is greatest in the first year.

True

A larger P/E ratio signifies greater value in your investment.

False

A lease is typically classified as an annuity due.

True

The current ratio is always equal or greater than the quick ratio.

True

Bondholders have voting rights. They just do not get as many votes as shareholders.

False

There is no liability in owning a share of stock.

False

The principal reduction for an amortized loan is constant. The amount of interest paid with each payment declines however.

False

The quick ratio would be more useful than the current ratio in evaluating the liquidity of a bagel shop.

False

From our guiding principals of finance, we can stay a firm has less risk when it increases leverage.

False

Inversion occurs when a firm's market value falls below its book value (shareholder equity).

False

The TIE ratio and debt ratio are good measures of firm default risk.

True

As an investor, you prefer that your account balances grow using compound interest rather than simple interest.

True

Firms like to issue debt because they can raise capital without giving up ownership.

True

There is greater liquidity with investments in a corporation versus investments in a sole proprietorship.

True

In general, the greater risk of an investment, the greater the return required by the investor.

True

Investment bankers prefer EBIT to value companies rather than EBITDA.

False

A bond with a credit rating of B would be considered junk status.

True

The prices of bonds with greater time until maturity are more sensitive to changes in interest rates.

True

The risk and the price of an investment are inversely related.

True

The future value of an annuity due is larger than the future value of an ordinary annuity.

True

The balance of an amortized loan is the present value of remaining payments.

True

For a firm with slow moving inventory, the current ratio is a better measure of liquidity than the quick ratio.

False

For a shareholder, a firm with greater leverage would be more risky than a firm with less leverage.

True

A dollar today is worth more than a dollar tomorrow.

True

A rental agreement would be most likely be valued using the PV of the ordinary annuity formula.

False

When a coupon rate is greater than the yield to maturity, the bond will trade as a discount.

False

The value today of bond's coupons is priced as an ordinary annuity.

True

Credit card companies prefer to quote the EAR of your account rather than the APR.

False

The current yield is favored by investors who seek to hold the bond until maturity.

False

There is an inverse relationship between risk and present value.

True