Chapter 1-3 - FIN 380

Which of the following files its own tax return (is a separate tax-paying entity):

corporation

You purchase securities directly from an entity. That entity is a securities:

dealer

The day-to-day decisions in a firm are typically made by the

management team

Which of the following are advantages of corporations:

ease of transfer and limited liability

Double taxation may exist in

corporations

In order for a particular security to be traded on a particular exchange, the security must be ______ on the exchange.

listed

One of the underlying principles of finance is that cash is:

king

Ultimate control of a corporation is held by the:

stockholders

The goal of the financial manager of a corporation is to:

maximize shareholders' wealth & maximize the firm's stock price

Investing in a variety of different securities is referred to as:

diversifying

The Chief Financial Officer of a corporation typically supervises the:

treasury department & accounting department

The situation where managers may not make decisions that are in the best interests of the company's owners is referred to as the:

agency problem

A market in which security prices quickly reflect new information is said to be:

efficient

The present value and the discount rate are _________ related, everything else equal.

inversely

"Earning interest on interest" pertains to:

compound interest

According to the rule of 72, an investment that earns 10% annual interest will double in approximately 7.2 years.

true

What is the future value six years from now of $1,000 invested at 4% interest compounded annually:

$1,265.32

What is the present value of $10,000 to be received seven years from now discounted at 8% APR compounded annually?

$5,834.90

How many years does it take for $10,000 to grow into $21,911.23 if the investment earns 8% APR compounded semi-annually?

10 years

A $20,000 investment compounds monthly for 120 months and grows into $29,000. What is the APR earned by this investment?

3.72%

What is the present value of $1,800 to be received nine years from now discounted at 5% APR compounded quarterly?

$1,150.94

What is the future value ten years from now of $2,500 invested at 7% APR compounded monthly?

$5,024.15

An investment of $20,000 grows into $35,000 over a period of 7 years. What is the APR?

8.32%

Brokers charge a fee or commission for bringing buyers and sellers together

true

Financial markets exist to transfer savings from:

households to businesses

Dealers actually buy securities from or sell securities to investors and earn a spread by buying low and selling high.

true

Limited liability exists for general partners.

false

When a corporation pays dividends, the corporation deducts those dividends from its taxable income.

false

Double taxation exists in:

corporations (non-Sub-S)

Limited liability exists for limited partners.

true

Limited liability exists for stockholders.

true

Limited liability exists for proprietors.

false

Double-taxation exists in non-Sub-S corporations.

true

Diversification refers to:

investing in a variety of different securities

Risk requires a:

reward

The agency problems exists because managers may pursue their own personal interests at the expense of the stockholders.

true

Time value of money is closely associated with the idea of:

a dollar today is worth more than a dollar tomorrow

The Chief Executive Officer is typically chosen by the:

Board of Directors

Control of a corporation is ultimately held by the:

stockholders

Both the treasury and accounting departments are typically under the direct supervision of the:

Chief Financial Officer

The goal of the financial manager should be:

maximization of shareholders' wealth (stock price)

What is the future value six years from now of $1,000 invested at 8% interest compounded annually?

$1,586.87

What is the present value of $10,000 to be received seven years from now at 8% APR compounded annually?

$5,834.90

What is the present value of $1,800 to be received eight years from now discounted at 5% APR compounded quarterly?

$1,209.57

A $20,000 investment compounds monthly for 120 months and grows into $28,000. What is the APR earned by this investment?

3.37%

An investment of $20,000 grows into $35,000 over a period of 9 years. What is the APR? Remember, when the compounding period is not given, we assume annual compounding.

6.42%

An investment of $20,000 grows into $35,000 over a period of 7 years. What is the APR? Remember, when the compounding period is not given, we assume annual compounding.

8.32%

How many years does it take for $10,000 to grow into $48,010.21 if the investment earns 8% APR compounded semi-annually?

20 years