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Published on June 23, 2015

BUS 401 Week 2 Quiz Business - General Business Question : The longer we have to wait for a future amount to be received: Student Answer: the lower its present value will be. the higher its present value will be. Time does not affect present value, so it doesn’t matter how long we have to wait. Beyond 10 years the value doesn’t change anymore because 10 years might as well be 20 years. Instructor Explanation: The answer can be found in Section 4.3: The Time Value of a Single Cash Flow. Points Received: 1 of 1 Comments: 2. Question : Compounding means that: Student Answer: dollar interest the first year is multiplied by the number of years to get total interest. the same dollar amount of interest is paid each period. interest is paid on interest earned in earlier periods. the rate of interest grows over time. Instructor Explanation: The answer can be found in Section 4.2: Compound and Simple Interest. Points Received: 1 of 1 Comments: 3. Question : An ordinary annuity has its first payment ______, but an annuity due has its first payment _________. Student Answer: at the beginning of the period; at the beginning of the period. at the beginning of the period; at the end of the period. at the end of the period; at the end of the period. at the end of the period; at the beginning of the period. Instructor Explanation: The answer can be found in Section 4.4: Valuing Multiple Cash Flows. Points Received: 1 of 1 Comments: 4. Question : The great majority of stock trades occur: Student Answer: in the secondary markets. in the primary market. as IPOs (initial public offerings). directly between the company and investors. Instructor Explanation: The answer can be found in Section 5.1: Stocks. Points Received: 1 of 1 Comments: 5. Question : Shareholders gains come in the form of: Student Answer: only dividends. only capital gains. dividends and capital gains. interest payments. Instructor Explanation: The answer can be found in the introduction to Chapter 5. Points Received: 1 of 1 Comments: 6. Question : Interest rates are given as annual rates. If semiannual (twice a year) compounding is being used, then you would make the following adjustments: Student Answer: Double the rate and double the number of years. Double the rate and halve the number of years. Halve the rate and halve the number of years. Halve the rate and double the number of years. Instructor Explanation: The answer can be found in Section 4.3: The Time Value of a Single Cash Flow. Points Received: 1 of 1 Comments: 7. Question : Which of the following is true of the structure of a zero-coupon bond? Student Answer: an annuity of interest payments and a single principal payment at maturity no interim interest payments but a variable payment at maturity, depending on interest rates an annuity of payments comprised of both interest and principal no interim interest payments and a single payment at maturity Instructor Explanation: The answer can be found in Section 5.2: Bonds. Points Received: 1 of 1 Comments: 8. Question : If we make the assumption that a company’s dividends grow at some constant rate, then we can value the stock as: Student Answer: a growing perpetuity. a growing annuity. a perpetuity. an annuity. Instructor Explanation: The answer can be found in Section 5.1: Stocks. Points Received: 1 of 1 Comments: 9. Question : Which of the following is NOT true of preferred stock? Student Answer: Preferred stock generally pays a fixed dividend. Preferred stock is a perpetuity. Dividends on preferred stock are tax deductible. Preferred stock dividends have a higher priority than common stock dividends. Instructor Explanation: The answer can be found in Section 5.1: Stocks. Points Received: 1 of 1 Comments: 10. Question : Zeta Corporation just paid a $2.00 dividend. Analysts believe that Zeta Corporation’s dividend will grow by 20% next year, and then settle into a constant growth regime at 5% per year into the future. If investors assign a required rate of return of 12% to Zeta’s stock, what should the stock sell for today? Student Answer: $30.00