Question 1

A nominal interest rate is an observed or stated interest rate.

Accepted Answer

A nominal interest rate is the stated or observed interest rate, not adjusted for inflation or compounding. It is also sometimes referred to as the "nominal rate."

Question 2

Inflation premium is the rising prices not offset by increasing quality of goods being purchased.

Accepted Answer

Inflation premium refers to the extra yield on an investment that investors demand as compensation for the risk that inflation will erode the value of their investment's returns over time. It does not directly relate to the quality of goods being purchased.

Question 3

First-round financing during a venture's survival stage comes primarily from venture capitalists and investment banks.

Accepted Answer

First-round financing during a venture's survival stage typically comes from venture capitalists and investment banks, along with angel investors and crowdfunding platforms.

Question 4

A venture's "riskiness" in terms of the likelihood of poor performance or failure decreases as it moves from its development stage through to its rapid-growth stage.

Accepted Answer

The answer of A venture's "riskiness" in terms of the...

Question 5

Formal historical accounting procedures include explicit records of debt (interest and principal)and dividend capital costs.

Accepted Answer

Formal historical accounting procedures do indeed include explicit records of debt (interest and principal) and dividend capital costs. These records are important for understanding the financial health of a company or organization, and for making informed decisions about investments and other financial matters.

Question 6

"Default-risk" is the risk that a borrower will not pay the interest and/or the principal on a loan.

Accepted Answer

Default-risk is commonly known as credit risk, which is the possibility that a borrower may fail to repay the loan or interest.

Question 7

The "real interest rate" (RR)is the interest one would face in the absence of inflation,risk,illiquidity,and any other factors determining the appropriate interest rate.

Accepted Answer

The definition of real interest rate is correct, therefore the answer is A.

Question 8

Startup financing usually comes from entrepreneurs,business angels,and investment bankers.

Accepted Answer

The answer of Startup financing usually comes from entrepreneurs,business angels,and...

Question 9

The "prime rate" is the interest rate charged by banks to their highest default risk business customers.

Accepted Answer

The prime rate is the interest rate that commercial banks charge their most creditworthy customers, typically large corporations.

Question 10

The risk-free interest rate is the interest rate on debt that is virtually free of inflation risk.

Accepted Answer

The risk-free interest rate is the interest rate on debt that is virtually free of default risk, not inflation risk. It typically refers to the yield on government securities considered to have negligible risk of default.

Question 11

The accounting emphasis on accrued revenue and expenses and depreciation is the same emphasis as that of finance managers.

Accepted Answer

Accounting focuses on recording, summarizing, and reporting financial transactions, including accrued revenues, expenses, and depreciation, for the purpose of providing information about the financial position and performance of a business. Finance managers, while they use this information, are more concerned with planning, directing, and managing financial activities such as capital raising, investment decisions, and risk management, which may involve different emphases, such as cash flows and the strategic allocation of financial resources.

Question 12

The relationship between real interest rates and time to maturity when default risk is constant is called the term structure of interest rates.

Accepted Answer

The answer of The relationship between real interest rates and...

Question 13

Traditional accounting does not focus on the implicit cost of equity that is the required capital gains to complement dividends.However,evaluation methods exist to determine this value by financial managers.

Accepted Answer

Traditional accounting does not consider the cost of equity, but financial managers have methods to evaluate this value.

Question 14

Liquidity premiums reflect the risk associated with firms that possess few liquid assets.

Accepted Answer

Liquidity premiums reflect the additional return investors demand for holding securities that are not easily convertible into cash without a significant loss in value, not directly the firm's possession of liquid assets.

Question 15

Public financial markets are markets for the creation,sale and trade of illiquid securities having less standardized negotiated features.

Accepted Answer

Public financial markets are markets for the creation, sale, and trade of liquid securities having more standardized negotiated features, such as stocks and bonds. Illiquid securities with less standardized features are typically traded in private financial markets.

Question 16

Commercial banks provide liquidity-stage financing for ventures in the rapid-growth stage of their life cycles.

Accepted Answer

The answer of Commercial banks provide liquidity-stage financing for ventures...

Question 17

The graph of the term structure of interest rates,which plots interest rates to time to maturity is called the yield curve.

Accepted Answer

The statement is true.

Question 18

A venture's "riskiness" in terms of poor performance or failure is usually very high during the maturity stage of its life cycle.

Accepted Answer

The maturity stage of a venture's life cycle is characterized by stability and a lower risk of failure compared to the earlier stages of the life cycle. It is during the earlier stages such as the start-up and growth stages that the risk of poor performance or failure is typically high.

Question 19

A venture's "riskiness" in terms of poor performance or failure is usually high to moderate during the rapid-growth stage of its life cycle.

Accepted Answer

During the rapid-growth stage, a venture is often expanding quickly and facing new challenges, which can increase the risk of poor performance or failure.

Question 20

Bond ratings reflect the inflation risk of a firm's bonds.

Accepted Answer

Bond ratings reflect the creditworthiness of a firm's bonds, not the inflation risk.

Quiz 7: Types and Costs of Financial Capital