Question

Price / Cash Flow b. Market/Book Value Prie/aming pee Share d. CAC Labs 6) Which is not a potential limitation of ratio analysis? (point) a. Comparison with industry averages b. Seasonal factors c. Same account practices d. None of above 7) Which of the following statements is FALSE? (1 point) a. The process of moving a value or cash flow forward in time is known as compounding b. The effect of earning interest on interest is known as compound interest c. It is only possible to compare or combine values at the same point in time. d. A dollar in the future is worth more than a dollar today 8) Use False (F) or True (T) for the claims below: (2 points) a. Most car loans, mortgages, and some bonds are annuities b. An annuity is a stream of Nequal cash flows paid at irregular intervals. c. Time value of money values time and risk. d. Present value is used to estimate the return on long term investments 9) Which of the following statements are CORRECT? (1 point) 1. The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond. II. The only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date. III. Usually the face value of a bond is repaid at maturity. IV. The coupon value is always the same until the bond maturity. a. All statements are correct. b. Only I and II are correct. c. Only I, II and IV are correct. d. Only I, II and III are correct

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Answer 1

Solution to Q5) Option B

How much an investor is paying today to own a piece of firm = Market Value

(Total Assets- Total Liabilities) signifies the Book Value of the company

Hence the correct Financial Ratio is Market to Book Value.............................Option B

Solution to Q6) Option A

Ratio Analysis can be used to compare a stock with its industry average.

The other mentioned options are the limitations of ratio analysis.

Solution to Q7) Option D

Using the concept of Time value of Money, we know that Money has a time value because we can invest money to make more money. Hence, if I have $1 today, I can use it to consume something today. However, if I decide to delay my consumption, by investing this $1 today, I would want more than $1 in the future. Hence, option D is false. the correct statement should be: A dollar today is worth more than a dollar in the future. The remaining statements are correct.

Solution Q8)

a) True

An annuity is a fixed sum of money paid/ received periodically. Generally, car loans, mortgages and some bonds are annuities i.e. they require us to make/receive periodic payments.

b)False

By definition, an annuity is a stream of equal cash flows at regular intervals.

c) True

Time Value of Money values Time and Risk.

d) False

It should be: Net Present Value (NPV) is used to estimate return on long term investment.

Solution to Q9) A

All the four statements are correct.