# Financial Management Midterm1

Topics: Capital asset pricing model, Investment, Modern portfolio theory Pages: 4 (665 words) Published: May 22, 2013
1- Starting to invest early for retirement reduces the benefits of compound interest.

a.True
b.False

b

2- How much would \$1, growing at 3.5% per year, be worth after 75 years?

a.\$12.54
b.\$13.20
c.\$13.86
d.\$14.55
e.\$15.28
b

3- How much would \$20,000 due in 50 years be worth today if the discount rate were 7.5%?

a.\$438.03
b.\$461.08
c.\$485.35
d.\$510.89
e.\$537.78
e

4- Suppose the U.S. Treasury offers to sell you a bond for \$3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for \$5,000. What interest rate would you earn if you bought this bond at the offer price?

a.3.82%
b.4.25%
c.4.72%
d.5.24%
e.5.77%
d

5- The Morrissey Company's bonds mature in 7 years, have a par value of \$1,000, and make an annual coupon payment of \$70. The market interest rate for the bonds is 8.5%. What is the bond's price?| | |

a.| \$923.22|
b.| \$946.30|
c.| \$969.96|
d.| \$994.21|
e.| \$1,019.06|
A 6- Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.a.Trueb. Falsea 7- A stock just paid a dividend of D0 = \$1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?a.\$23.11b.\$23.70c.\$24.31d.\$24.93e.\$25.57e 8- Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength.| | |

a.| True|
b.| FalseA|
9- Profitability ratios show the combined effects of liquidity, asset management, and debt management on operating results.| | |
a.| True|
b.| False|
A 10 - One problem with ratio analysis is that relationships can be manipulated. For example, if our current ratio is...