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WorksheetsMoney and Capital Markets
Total questions: 16
Worksheet time: 8mins
Money market securities have all the following characteristics except they are not
short term
money
low risk
very liquid
Finance companies raise funds in the money market by selling
commercial paper
federal funds
negotiable certificates of deposits
Eurodollars
Suppose that you purchase a 91-day Treasury bill for $9,850 that is worth $10,000 when it matures. The security's discount rate if held to maturity is about
4.87%
5.93%
6.18%
7.00%
Suppose that you purchase a 91-day Treasury bill for $9,850 that is worth $10,000 when it matures. The security's annualized investment rate if held to maturity is about
4.87%
5.93%
6.18%
7.00%
Compared to money market securities, capital market securities have
more liquidity
longer maturity
lower yields
less risk
The primary reason that individuals and firms choose to borrow long-term is to
reduce the risk that interest rates will fall before they pay off their debt
reduce the risk that interest rates will rise before they pay off their debt.
reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments
reduce total interest payments over the life of the debt
Typically, the interest rate on corporate bonds will be ________ the more restrictions are placed on management through restrictive covenants, because ________.
higher; corporate earnings will be limited by the restrictions
higher; the bonds will be considered safer by bondholders
lower; the bonds will be considered safer by buyers
lower; corporate earnings will be higher with more restrictions in place
A basic principle of finance is that the value of any investment is
the present value of all future net cash flows generated by the investment
the undiscounted sum of all future net cash flows generated by the investment
unrelated to the future net cash flows generated by the investment
unrelated to the degree of risk associated with the future net cash flows generated by the investment
A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments?
$30.24
$26.30
$26.09
$27.74
Suppose the average industry PE ratio for auto parts retailers is 20. What is the current price of Auto Zone stock if the retailer's earnings per share is projected to be $1.85?
$21.85
$9.25
$10.81
$37
According to the Gordon growth model, what is an investor's valuation of a stock whose current dividend is $1.00 per year if dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor's required return is 15 percent?
$20
$11
$22
$7.73
SD's stock price is currently $25. It is expected to pay a dividend of $0.85 a share in the current year. If its price one year is predicted to be $27.50, what is the expected return?
-6.6%
12.18%
12.50%
13.4%
A spot transaction in the foreign exchange market involves the
exchange of exports and imports at a specified future date.
exchange of bank deposits at a specified future date.
immediate (within two days) exchange of exports and imports.
immediate (within two days) exchange of bank deposits.
When the value of the British pound changes from $1.50 to $1.25, the pound has ________ and the dollar has ________.
appreciated; appreciated
depreciated; appreciated
appreciated; depreciated
depreciated; depreciated
When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar, the euro has ________ and the dollar has ________
appreciated; appreciated
depreciated; appreciated
appreciated; depreciated
depreciated; depreciated
If the 2005 inflation rate in Britain is 6 percent, and the inflation rate in the U.S. is 4 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the British pound in terms of U.S. dollars will
rise by 10 percent.
rise by 2 percent.
fall by 10 percent.
fall by 2 percent.
