Finance Exam

Front

What is the primary method used to value financial assets?

Back

Future cash flow discounting

Front

Why might United Airlines be considered a riskier investment than Microsoft?

Back

United Airlines has faced financial difficulties and higher volatility.

Front

How does inflation premium affect the required rate of return?

Back

It increases the required rate of return.

Front

What is the likely impact on bond prices if inflationary expectations increase?

Back

Bond prices will decrease

Front

How does the remaining time to maturity affect a bond's price sensitivity to changes in yield?

Back

Longer maturity bonds are more sensitive

Front

What does the growth rate in the required rate of return on common stock signify?

Back

Expected increase in dividends and earnings

Front

Why might management quality and performance influence the price-earnings ratio?

Back

It affects investor confidence and future earnings expectations

Front

What is a potential risk of using only the cost of debt for investment decisions?

Back

It may underestimate the project's risk

Front

How does using the overall cost of capital affect the evaluation of a project?

Back

It ensures all projects are evaluated on a consistent basis

Front

Which statement best describes the relationship between discount rates and capital allocation?

Back

Lower discount rates lead to more capital allocation.