Question

1. Your car dealer has a 0% financing promotion. He’s willing to give you an additional $500 discount off the list price if you finance the car over 36 months instead of 48 months. Which key principle in finance does this illustrate?

a.	Higher risk requires higher return
b.	Time value of money
c.	Cash is king
d.	Leverage increases financial risk

2. Conflicts of interest in financial markets are unethical because
   1. They create perception of unfairness and sap investor confidence in markets
   2. They inevitably lead to fraudulent activities
   3. They do not conduce to economic prosperity
   4. They produce social injustice and inequality of wealth

3. Finance is different from accounting in that

a.	Finance is mostly concerned with stock and bonds and accounting does not
b.	Finance is forward-looking and is concerned with how accounting information (which is mostly backward-looking) is being used to predict the future
c.	Finance is about trading and accounting is much broader than that
d.	Finance is about money management and accounting is about transaction reporting

4. A contract which binds two parties to a customized agreement to exchange certain goods/services at some future date at a price determined today is called a(n)

a.	Option
b.	Future
c.	Convertible
d.	Forward

5. Which of the following is a type of debt?

a.	A mutual fund account
b.	A certificate of deposit
c.	A stock option
d.	A preferred stock

6.     You just sold 100 shares of ABC Co. stock for $1,050 which you bought 18 months ago for $1,400. During this holding period you also received $200 in dividends from the company. What is your Holding Period Return (HPR)?

39.3%

10.7%

-25.0% -10.7%

7.         Assume that expected rates of inflation over the next 5 years are 3 percent, 3 percent, 4 percent, 5 percent, and 5 percent, respectively. What is the expected rate of a 5-year Treasury note if the real risk-free rate is 1% and all other risk premiums are zero?

a.	5.0%
b.	4.0%
c.	4.2%
d.	4.5%

Answer 1

1.Your car dealer has a 0% financing promotion. He’s willing to give you an additional $500 discount off the list price if you finance the car over 36 months instead of 48 months. Which key principle in finance does this illustrate?

Answer-b) TIME VALUE OF MONEY.here in this question the key principle in finance is that time value of money.Because car dealer gives a $500 discount if I finance the car in 36 months instead of 48 months.Dealer gets his money within 36 months.

2.Conflicts of interest in financial markets are unethical because.

Answer- a) They create a perception of unfairness and sap investors confidence in market.

3.Finance is different from accounting in that

Answer b) Finance is forward looking and is concerned with how accounting information (which is mostly backward-looking) is being used to predict the future

4. A contract which binds two parties to a customized agreement to exchange certain goods/services at some future date at a price determined today is called

Answer- d) FORWARD