Question 11 Which of the following statements is NOT correct? Not yet answered P

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Question 11 Which of the following statements is NOT correct? Not yet answered Points out of 10.0 Flag question Select one: o a. A 15-year mortgage will have a lower monthly payment that an otherwise similar 30,year mortgage O b. An ordinary annuity will have a higher present value that a similar annuity due O c. If an investment earns 10% interest compounded annually, its effective rate will be greater than 10% O d. A bond with an annual coupon will have a higher value than a similar bond with a semi-annual coupon O e. All of the above are false Question 12 Not yer Select one: Points out of a.Other things held constant, it is better to have a relatively short cash conversion cycle than a relatively long one b. If a firm takes actions that reduce its days-saies-outstanding then, other things held consta nt, this will fengthen its cash question conversion cycle .Other things held constant. if a firm stretches its accounts payable, this will lengthen its cash conversion cycle d. Other things held constant, the length of a firm's cash conversion cycle has little or ino effect on profitability e. Since firms have minimal control over their cash converslon gydles, there is little point in colculating these cycles

Explanation / Answer

1) Option e. All of the above are false is correct option because
Option a is incorrect because longer the period lower is the monthly payment.
Option b is incorrect because since annuity due is paid at beginning of time period and ordinary annuity is paid after time period the PV of ordinary annuity is discounted more than annuity due.
Option c is incorrect because Annual compounding rate an effective rate are same.
Option d is incorrect. Semi Coupon bond has more value than annual coupon bond because the

2) Option a is correct Short cash conversion cycle ensures liquidity in firms
All other options are incorrect because if a firm reduces its days sales outstanding then the cash cycle should decrease. As per the Formula = Cash conversion Cycle = Days Sales outstanding + Days Inventory Outstanding – Days Payable Outstanding. If accounts payable days increases then it will reduce and not stretch the cash cycle as per the formula. Option d and E are false as it effects profitability and is under the control of the firm.

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