Question 1) The present value of a dollar:
Increases as the interest rate increases.
Decreases as the interest rate increases.
Increases as the time period increases.
Decreases as the time period increases.
a. 1 and 3.
b. 1 and 4.
c. 2 and 3.
d. 2 and 4.
Question 2: Discounting:
a. Expresses the present in the future.
b. Brings the future back to the present.
c. Is synonymous with compounding.
d. Depends on the rate of interest.
Question 3: The future value of an annuity is:
Larger the higher the rate of interest.
Smaller the higher the rate of interest.
Larger the greater the number of years.
Smaller the greater the number of years.
a. 1 and 3.
b. 1 and 4.
c. 2 and 3.
d. 2 and 4.
Question 4: Which is the largest if interest rates are 7 percent?
a. $100 compounded for three years.
b. The future value of a $100 annuity for three years.
c. The present value of $100 after three years.
d. The present value of a $100 annuity.
Question 5: If the required rate of return is 10 percent and the stock pays a fixed $5 dividend, its value is:
a. $100.
b. $75.
c. $50.
d. $25.
Question 6: The risk adjusted required rate of return includes:
The firm's earnings.
The firm's beta coefficient.
The treasury bill rate (i.e., the risk free rate).
a. 1 and 2.
b. 1 and 3.
c. 2 and 3.
d. All of the above.
Question 7: A stock's price will tend to fall if:
The firm's beta declines.
The firm's beta increases.
The risk free rate declines.
The risk free rate increases.
a. 1 and 3.
b. 1 and 4.
c. 2 and 3.
d. 2 and 4.
Question 8: A P/E ratio depends on:
The firm's dividends.
The price of the stock.
The firm's per share earnings.
a. 1 and 2.
b. 1 and 3.
c. 2 and 3.
d. all of the above.
Question 9: The use of P/E ratios to select stocks suggests that:
a. High P/E stocks should be purchased.
b. Low P/E ratio stocks are overvalued.
c. A stock should be purchased if it is selling near its historic low P/E.
d. A stock should be purchased if it is selling near its historic high P/E.