Question 1

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

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Question 2

What is the formula you should use to determine a bank account's future value in one year?

Accepted Answer

The formula for calculating future value of a bank account in one year is FV = PV x (1 + r), where FV is the future value, PV is the present value, and r is the annual interest rate in decimals. Therefore, the answer is C, "Future value equals the present value multiplied by one plus the rate of interest in decimals."

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 for determining the future value of an account after one year of earning interest is FV = PV(1+i), where FV is the future value, PV is the present value, and i is the interest rate as a decimal. This formula takes into account the initial amount deposited (PV) as well as the interest earned (PV × i) over the course of the year, resulting in a total future value of (PV × (1+i)). Option C is the only one that correctly represents this formula.

Question 4

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?

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Question 5

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

Accepted Answer

Short-term debts like accounts payable are considered current liabilities, as they must be paid off within a year. Current assets are items that can be easily converted to cash within a year, such as inventory or accounts receivable. Stockholder's equity represents the amount of value contributed by shareholders to the company. Goodwill is an intangible asset that represents the excess of the purchase price of a company over the fair value of its identifiable assets and liabilities.

Question 6

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

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Question 7

Briefly describe the Sarbanes-Oxley Act and explain why it was passed.

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Question 8

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.

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Question 9

What must balance on a balance sheet?

Accepted Answer

The balance sheet is designed to show the financial position of a company at a specific point in time, and it must balance by following the accounting equation: Total assets = Total liabilities + Equity. This means that the value of a company's assets must be equal to the providers of the funds (liabilities) plus the shareholders' equity.

Question 10

Why do corporate boards of directors sometimes link top managers' compensation to the corporations' stock prices? How might tying compensation too closely to stock prices create an incentive for corporate fraud.

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Question 11

Why did the principal-agent problem for investment banks become more severe following the repeal of the Glass-Steagall Act in 1999?

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Question 12

The value you give today to money you will receive in the future is called the future payment's

Accepted Answer

The value given today to money received in the future is known as present value. This is because it reflects the current value of the future payment, taking into account factors such as inflation and potential investments that may impact the future value of the payment.

Question 13

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 most you can get for your old bond is the present value of the bond's future payments at the new 12 percent rate. Using a financial calculator, the present value of a one-year, five percent coupon bond with a face value of $1,000, at a 12 percent discount rate, is $937.50.

Question 14

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 present value, FV is future value, r is the interest rate, and n is the number of years. So, in this case, PV = 300 / (1 + 0.05)^5, which simplifies to PV = 300 / 1.27628, or approximately PV = $235.07. Choice B is the closest to this calculation.

Question 15

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

Accepted Answer

The formula for present value of a future cash flow is PV = FV / (1 + r), where PV is the present value, FV is the future value, and r is the interest rate. Plugging in the given numbers, we get: PV = $10,000 / (1 + 0.04) = $9,615.38

Question 16

Which of the following is operating income?

Accepted Answer

Operating income is calculated as revenue minus operating expenses. This figure shows the profit that a company generates from its core operations before accounting for interest, taxes, and other non-operational items. Choice A refers to total costs, not operating income. Choice B refers to a balance sheet item, not an income statement item. Choice D refers to net profit, which includes all income and expenses, not just those related to operations.

Question 17

What was the source of the problems encountered by many financial firms during the late 2000s?

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Question 18

Why is a dollar today more valuable than a dollar a year from now?

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Question 19

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

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Question 20

Why do financial markets depend on accurate accounting and disclosure practices?

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Quiz 8: Firms,the Stock Market,and Corporate Governance