1) Which of the following is the largest category of asset-backed securities?
A.
Student Loans
B.
Manufactured Housing Loans
C.
Automobile Loans
D.
Home Equity Loans
2) LIBOR is
A.
a resource used in production.
B.
the interest rate paid by the British government on its long-term bonds.
C.
an interest rate paid on Eurodollar loans in the London market.
D.
an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. banks.
3) A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from
A.
declining interest rates.
changes in hedging activities.
C.
rising interest rates.
D.
inflation.
4) Commercial paper is very popular with many firms because
A.
it can usually be issued below the prime rate.
B.
it is very easy to roll over (refinance) in times of economic turmoil.
C.
it satisfies the firm's need for long-term funds.
D.
there are no required lines of credits at the bank.
5) Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $2,000 today. Which should she choose?
A.
the $1 million dollars in 50 years.
B.
need more information.
C.
$2,000 today.
D.
she should be indifferent.
6) As the time period until receipt increases, the present value of an amount at a fixed interest rate
A.
decreases.
B.
Not enough information to tell.
C.
remains the same.
D.
increases.
7) You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today?
A.
Present value of an annuity of $1
B.
Future value of $1
C.
Future value of an annuity
D.
Present value of $1
8) To save for her newborn son's college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value?
A.
$7,690.
B.
$55,750.
C.
$34,931.
D.
$63,440.
9) Firms exposed to the risk of interest rate changes may reduce that risk by
A.
obtaining a Eurodollar loan.
B.
hedging in the commodities market.
C.
hedging in the financial futures market.
D.
pledging or factoring accounts receivable.
10) All of the following are benefits of commercial paper to the corporation EXCEPT:
A.
it is often issued at below the prime interest rate
B.
they are less risky
C.
there are no compensating balance requirements
D.
they provide prestige
11) Under what conditions must a distinction be made between money to be received today and money to be received in the future?
A.
A period of recession.
B.
When there is no risk of nonpayment in the future.
C.
When idle money can earn a positive return.
D.
When current interest rates are different from expected future rates.
12) Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period?
A.
$2,915
B.
$3,570
C.
$6,254
D.
$8,570
13) Dr. J. wants to buy a Dell computer which will cost $2,788 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?
A.
$531.81
B.
$697.00
C.
$823.15
D.
$627.93
14) Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $2,000 today. Which should she choose?
A.
she should be indifferent.
B.
$2,000 today.
C.
need more information.
D.
the $1 million dollars in 50 years.
15) Commercial paper that is sold without the use of an actual paper certificate is known as
A.
term paper.
B.
book-entry paper.
C.
dealer paper.
D.
finance paper.
16) Kathy has $60,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years?
A.
between 10% and 11%
B.
between 9% and 10%
C.
between 8% and 9%
D.
between 7% and 8%
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