1. The only risk you would NOT have in loaning money to the United States Govern
ID: 2497000 • Letter: 1
Question
1. The only risk you would NOT have in loaning money to the United States Government (Uncle Sugar) is _____ risk. a- liquidity; b- maturity; c- default
2.Euro dollars are _____ and interest is tied to _____. a- risky than US dollars; LESCO; b- held in US banks; the Prime Rate; c- US dollars held in foreign banks; LIBOR; d- none of the above
3. There ___ a tax benefit to the company with paying preferred dividends because _______. a- is; investors can write them off; b- is not; investors declare them as income; c- is; the company can use the payments as an expense; d- is not; the company cannot use the payments as an expense.
4. XYZ Corp. issued a 6% coupon, $1,000 par, 30 year bond. It is now 6 years to maturity. What is the price of the bond if the yield to maturity [market interest rate] is 10%? a- $1000; b- $825.46; c- $705.33; d- $1091.52
5. ______is the process of evaluating and selecting long-term investments consistent with the firm's goal of owner wealth maximization. a- Recapitalizing assets; b- Capital budgeting; c- Both of the above; d- Ratio analysis
Explanation / Answer
Solution:
1. The answer to the question is -
risk.
As, there will not be any risk with Uncle Sugar
3.
The answer to the question is -
d. is not, the company cannot use it as an expense.
As the company will not get any deduction for expense for tax.
Thus, it is not a benefit for tax.
4.
5.
The answer to the question is -
b. Capital Budgeting
The capital budgeting technique is used to evaluate long term investments
Par Value 1,000 Coupon Payment 60 Redeemable value 1,000 Yield to maturity 10% Value of bond = present value of interest + present value of redeemable value Present value of interest payment Coupon Payment 60 PVAF @ 10 % for 30 years 4.355 Present value of interest payment 261.3 Present redeemable value Redeemable value 1,000 PVIF @ 10 % for 30 years 0.5645 Present redeemable value 564.5 Value of Bond 825.8 Answer is b. $ 825.46Related Questions
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