In a mortgage, most of the early payment goes to pay off interest or principal?
What is Interest
100
The largest bond market in the world
What is the US Treasury market
100
When you ask for a quote on a stock, which one is higher, the bid price or the ask price?
What is the Ask Price.
100
What is the NPV of a project at a cost of capital equal to its IRR?
What is Zero
100
Merck has spent $1 billion dollars in R&D dedicated to find a cure for a disease. Do you include that amount in the capital cost of manufacturing the drug?
What is No (sunken cost)
200
According to the Rule of 72, how many years will it take for the stock market to double if it earns a return of 9 percent per year.
What is 8 Years
200
When does a bond sell for less than the face value?
When the coupon is less than the going interest rate, or ytm
200
The stock market in which previously issued securities are traded among investors.
What is Secondary Market
200
The crossover point is the discount rate at which the NPV of a project crosses the X axis. True or False?
What is False, because that is the IRR, not the crossover rate (= rate at which 2 projects have the same NPV)
200
All else being the same, would a company's average cost of capital increase or decrease if the tax rate increases?
What is Decrease
300
How much would you pay to receive $100 per year forever if you wish to earn a return of 5 percent per year.
What is $2,000
300
If the credit risk of a bond decreases, what will happen to its price?
What is Rise
300
The risk premium on a stock with a Beta equal to 2 is how much higher than that of a stock with a Beta equal to 1?
What is Twice Higher
300
It is possible to have two IRRs for a project, but is it possible to have more than one NPV?
What is No.
300
Is the PV of the tax shield on accelerated depreciation greater or less than straight line depreciation
What is Higher
400
Which one is usually greater on a loan: the EAR or APR?
What is EAR, because of the compounding effect
400
If inflation is expected to increase, what will happen to the prices of bonds?
What is Fall, because ytm increases
400
In a no growth stock all your return comes in the form of a dividend. In what form does your return come in a growth stock?
What is Dividend plus Capital Gain
400
A has an IRR of 15 percent and an NPV of $40,000. B has an IRR of 30 percent and an NPV of $20,000. Which is the preferred project?
What is A. Always go with NPV, because the IRR cannot distinguish preference.
400
If your company's tax rate is 40 percent, what is the total amount of the depreciation tax shield of a machine which costs $100,000? Assume a 10 year life and accelerated depreciation.
What is $40,000
500
What type of annuity has a higher Present Value, ordinary or due?
What is Due
500
Is the total interest paid on a 10%, $100,000, 30 year bond (annual coupons) greater/equal/less than that of a 10%, $100,000, 30 year mortgage (monthly payments)?
What is Bond, because no principal is paid until maturity.
500
A stock will pay a dividend of $5 per share in year 1 and is expected to grow at 10 percent per year. If the price of the stock next year is $110, what is its price today?
What is $100, because the price also grows at 10%
500
The discounted payback period for a 30 year mortgage is higher/lower/the same if the mortgage is paid twice per month versus once per month. Assume a mortgage rate of 10 percent per year in both cases.
What is always 30 years (the same)
500
You own a piece of land that is currently worth $1 million. Would you include that $1 million as part of the capital cost of a project or ignore it because you already own it?
What is include the $1 million as part of the capital cost.