Deck 7: Debt and Equity Financing

Question 1

In order for investors to purchase stock in a company, they will require a return of at least a certain amount. The amount investors require depends on which of the following?

A) Production opportunities
B) Time preferences for consumption
C) Risk
D) Inflation
E) All of the above

Answer 1

E

Question 2

Which of the following is added to the risk-free rate to reflect the likelihood that the issuer will default?

A) Inflation risk premium
B) Default risk premium
C) Liquidity premium
D) Maturity risk premium
E) None of the above

Answer 2

B

Question 3

Of the following, which is NOT a form of equity financing?

A) A loan
B) Retained earnings
C) Government funding
D) Gifts
E) Donations

Answer 3

A

Question 4

What percentage of businesses have equity ownership?

A) 5%
B) 25%
C) 50%
D) 75%
E) 100%

Question 5

Which league prohibits the publicly traded ownership model?

A) NBA
B) MLB
C) NFL
D) MLS
E) NHL

Question 6

The __________ of a bond is the face value, or amount of principal that the bond is worth when the principal amount is due.

A) Coupon rate
B) Par value
C) Maturity
D) Current yield
E) Yield to maturity

Question 7

Which of the following is the amount earned annually from the interest payment compared with the price of the bond reflected as a percentage return?

A) Coupon rate
B) Par value
C) Maturity
D) Current yield
E) Yield to maturity

Question 8

Of the following, which is an indirect source of public financing?

A) Sales tax revenue
B) Sin tax revenue
C) Tourism tax revenue
D) Lottery proceeds
E) Tax abatements

Question 9

The four factors that influence the required rate of return are production opportunities, investment total, risk, and inflation.

Question 10

A market expectation of lower interest rates in the future that outweigh the maturity risk premium leads to an inverted yield curve.

Question 11

Companies issue dividends in exchange for money to finance a large project.

Question 12

The provision of land for a sports stadium is an example of direct financing.

Question 13

Donations to 501(c)(3) organizations are tax deductible.

Question 14

Companies that pay a consistent dividend each year reduce the financial risk of stock ownership in the company.

Question 15

A call premium is often equal to one year's interest payments, if the call occurs during the first year, and it declines each year thereafter.

Question 16

Trade credits are often granted by the retailer to a manufacturer.

Question 17

In the priority of claims on the assets of a company in liquidation, the trustee's costs are prioritized above the federal, state, and local taxes.

Question 18

An advantage of publicly traded equity financing is that it is easier for owners to have an exit strategy.