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12 Assuming you will leave your money in the bank for the entire year, which of the following interest rate alternatives would you prefer?
a. 11.75 % compounded semi-annually
b. 11.75 % compounded quarterly
c. 11.45 % compounded weekly
d. 11.45 % compounded annually
e. None of the above or insufficient information

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We would prefer the alternative that has the highest effective annual rate (EAR)
a. 11.75 % compounded ...

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The solution explains the correct option in relation to interest rate alternatives

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Chapter 9

1. If you invest $8,000 per period for 40 years at 11 percent, how much would you have?
a. $4,654,640
b. $6,544,640
c. $4,546,640
d. $3,544,640

2. How is the future value related to the present value of a single sum?
a. future value represents expected dollar limits of a current amount, whereas the present value represents the total dollar worth
b. future value represents expected worth of a current amount, whereas the present value represents the future worth
c. future value represents expected worth of a single amount, whereas the present value represents the current worth
d. All of the above

Chapter 10

3. Which of the following is not an adjustment that has to be made in going form annual to semiannual bonds analysis?
a. divide the annual interest rate by two
b. multiply the number of years by two
c. divide the annual yield to maturity by two
d. multiply the number of years by four

4. Essex Biochemical Co. has a $1,000 par value bond outstanding that pays 10 percent annual interest. The current yield to maturity on such bonds in the market is 7 percent. Compute the price of the bond for a 30 year maturity date:
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Chapter 12

5. A weakness of the payback period are:
a. there is no consideration of inflows after the cutoff period
b. the concept fails to consider the time value of money
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d. none of the above

6. If a corporation has projects that will earn more than the cost of capital, should it ration capital?

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Chapter 13

7. When is the coefficient of variation a better measure of risk than the standard deviation?
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8. Possible outcomes for three investment alternatives and their probabilities of occurrence are given below.

Alternative 1 Alternative 2 Alternative 3
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Failure 50 0.2 90 0.3 80 0.4
Acceptable 80 0.4 160 0.5 200 0.5
Successful 120 0.4 200 0.2 400 0.1

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a. #3 - .675, #1 - .582, #2 - .374
b. #1 - .753, #2 - .891, #3 - .897
c. #2 - .358, #3 - .468, #2 - .759
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Chapter 11

9. What are the two sources of equity (ownership) capital for the firm?
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Chapter 18

11. How is a stock split treated on the financial statements of a corporation?
a. debit to stock splits and credit to stock
b. stock splits are recorded on the financials dependent on the materiality
c. recording on stock splits in not required by GAAP or FASB
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12. Neil Diamond Brokers, Inc. reported earnings per share of $4.00 and paid $.90 in dividends. What is the payout ratio?:
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Chapter 19

13. Which of the following are basic advantages to the corporation of issuing convertible securities?
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b. this type of security may be the only device for allowing a small firm access to the capital markets
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14. Futures are;.

a. two parties agree to exchange obligations to make specified payment streams
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Chapter 16

15. Which of the following is not a specific feature of a bond agreement?
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16. What is a Eurobond?
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Chapter 17

17. Why has corporate management become increasingly sensitive to the desires of large institutional investors?
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Chapter 20

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Chapter 21

20. The effective exchange rate for a foreign currency for delivery on (approximately) the current day is?

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