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Multiple Choice Questions in Investment

Question 6: In looking at the current yield curve you see the following spot rates: one year 6.19%, two years 5.90%, and three years 5.71%. If you assume that the yield curve is best explained by the "pure expectations theory", what is the expected one-year rate two years from now?
a. 5.9%
b. 5.71%
c. 5.04%
d. 5.33%

Question 8: The value of any asset equals:
a. the cost of maintaining an asset over its useful life
b. the present value of all of its future benefits
c. the book value of the asset
d. the replacement cost of an asset
e. none of the above

Question 9: Under the free cash flow approach to valuation:
a. share value equals the present value of all free cash flows.
b. share value is found by subtracting the value of debt and preferred stock from the enterprise value.
c. the enterprise value is found by discounting free cash flows at the required return on equity.
d. the share value is found by multiplying free cash flows by the firm's weighted average cost of capital.
e. none of the above.

Question 10: Moe, a private investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If Moe holds the T-bill to maturity what is his bank discount yield?
a. 6.20%
b. 5.93%
c. 3.00%
d. 6.12%

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Question 6
In looking at the current yield curve you see the following spot rates: one year 6.19%, two years 5.90%, and three years 5.71%. If you assume that the yield curve is best explained by the "pure expectations theory", what is the expected one-year rate two years from now?

a. 5.9%
b. 5.71%
c. 5.04%
d. 5.33%
Answer: d. 5.33%

One-year rate two years from now
= {(1+ 0.0571) ^3/ (1.059) ^2} -1 = 0.0533 = 5.33%
(^ means ...

Solution Summary

Answers Multiple Choice Questions in Investment.

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