Question 1

If you want to know the present value of $10,000 received in one year, and the interest rate is 4 percent, what formula can you use?

Accepted Answer

The formula for present value is future value divided by (1 + interest rate) raised to the power of the number of periods. In this case, since the $10,000 is being received in one year, there's only one period. So, the present value equals $10,000 divided by (1 + 0.04)^1, which simplifies to $9,615.38. Therefore, choice B is correct.

Question 2

If you own a $1,000 face value bond with one year remaining to maturity and a five percent coupon rate and new bonds are paying 12 percent, what is the most you can get for your old bond?

Accepted Answer

The bond's current value can be calculated using the formula: Current bond value = (annual coupon payment / current bond yield) + (face value / (1 + current bond yield)^n), where n is the number of years remaining to maturity. Using the given information, the annual coupon payment is $50 (5% of $1,000 face value), n is 1, and the current bond yield is 12%. Plugging these values into the formula, we get: Current bond value = ($50 / 0.12) + ($1,000 / (1 + 0.12)^1) = $416.67 + $892.83 = $1,309.50. However, since the bond only has a face value of $1,000, the most you can get for your old bond is its face value, or $1,000. Therefore, the best choice is C.

Question 3

If you put $100 into a bank account that earns five percent interest per year, what is the formula you should use to determine the account's future value in one year?

Accepted Answer

The formula to determine future value is to multiply the present value by one plus the rate of interest in decimals. In this case, it would be $100 x (1 + 0.05) = $105. Therefore, option C is the correct formula.

Question 4

Briefly describe the United States' Sarbanes-Oxley Act (which resembles Bill 198 and other initiatives by the Canadian Securities Administrators)and explain why it was passed.

Accepted Answer

The answer of Briefly describe the United States' Sarbanes-Oxley Act...

Question 5

What is the present value of $575 in a one year if the current rate of interest is 4 percent?

Accepted Answer

The answer of What is the present value of $575...

Question 6

If a dollar a year from now will likely have less purchasing power because of inflation, then a dollar today ________ a dollar a year from now.

Accepted Answer

The answer of If a dollar a year from now...

Question 7

The present value of $300 received 5 years in the future would be calculated as which of the following when the interest rate is 5%?

Accepted Answer

The present value formula is PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years. Plugging in the given values, we get PV = 300 / (1 + 0.05)^5 = 300 / 1.276 = 234.81. Therefore, the best choice is B, which corresponds to this formula.

Question 8

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $3.00 per share, and you have an alternative investment of equal risk that will earn a 9 percent rate of return, what would you be willing to pay per share for this stock?

Accepted Answer

The answer of If a stock's dividend is expected to...

Question 9

During 2007, many "subprime" and "Alt-A" borrowers began to default on their mortgages.Describe "subprime" and "Alt-A" borrowers.

Accepted Answer

The answer of During 2007, many "subprime" and "Alt-A" borrowers...

Question 10

The United States' Sarbanes-Oxley Act of 2002 (which resembles Bill 198 and other initiatives by the
Canadian Securities Administrators)requires that CEOs personally certify the accuracy of financial reports.

Accepted Answer

The statement is true. The Sarbanes-Oxley Act of 2002 does require CEOs to personally certify the accuracy of financial reports, among other provisions related to corporate responsibility and accountability.

Question 11

What must balance on a balance sheet?

Accepted Answer

The balance sheet is a statement of the financial position of a company at a particular point in time. It shows the assets owned by the company, the liabilities owed by the company, and the equity of the owners. The main principle of a balance sheet is that the total assets must be equal to the total liabilities plus equity. This is known as the accounting equation and must always balance. Revenues and costs are not included on a balance sheet, and retained earnings and dividends paid are part of the equity section.

Question 12

Suppose you hit a progressive jackpot on a slot machine in a casino at Niagara Falls and are given the choice of the following prizes:
Prize 1: $150,000 to be received right away, with three additional payments of $150,000 to be received each year for the next three years.
Prize 2: $500,000 to be received right away.
If the interest rate is 5 percent, what is the present value of each prize?

Accepted Answer

The answer of Suppose you hit a progressive jackpot on...

Question 13

Net worth and stockholders' equity are both equal to the difference between assets and liabilities.

Accepted Answer

Both net worth and stockholders' equity represent the residual interest in the assets of a company after deducting its liabilities. Therefore, they are both equal to the difference between assets and liabilities.

Question 14

Roderick received a $100 savings bond for his graduation.The bond pays $100 at maturity, which is in five years.If the interest rate is 6%, the bond has a present value of $90.09.

Accepted Answer

The bond's present value can be calculated using the formula:
PV = FV / (1 + r)^t, where PV is the present value, FV is the future value ($100), r is the interest rate (0.06), and t is the number of years (5).
Plugging in the values, we get:
PV = 100 / (1 + 0.06)^5
PV = $74.73
Therefore, the statement is false. The bond has a present value of $74.73, not $90.09.

Question 15

On a balance sheet, short-term debts such as accounts payable are listed as

Accepted Answer

Short-term debts such as accounts payable are obligations that the company owes and must pay back within a year, thus they are considered current liabilities on the balance sheet. Current assets are assets that can be converted into cash within a year, stockholder's equity represents the portion of a company's assets that belongs to the owners, and goodwill is an intangible asset that represents the value of a company's reputation, brand, or relationships.

Question 16

How much is a bond that pays $50 in coupon payments for 3 years and $1,000 at the end of the third year worth if the interest rate is 10%?

Accepted Answer

The answer of How much is a bond that pays...

Question 17

Which of the following is operating income?

Accepted Answer

Operating income is the amount of profit generated after deducting operating expenses from revenue. Therefore, the option that represents this is C: revenue minus operating expenses. Options A, B, and D are not operating income. Option A refers to total costs, including both explicit and implicit costs. Option B refers to the equity that the stockholders have in the company. Option D refers to the profit left over after all expenses have been deducted, but this includes non-operating items like interest and taxes.

Quiz 17: Firms, the Stock Market, and Corporate Governance