Prin of Fin. Milestone 2 PDF

Preview

Summary

Milestone responses for sophia learning for fin320...

Description

6/4/2021

Sophia :: Welcome

Score 20/20

You passed this Milestone 20 questions were answered correctly. 1 In calculating the yield of an investment, what is EAR equivalent to?

IRR

APR

UNIT 2 — MILESTONE 2 NPV APY

CONCEPT Yield 2 Which of the following is true for calculating the future value of multiple cash flows?

To find the FV of multiple annuities, multiply the sum of all the present values by the interest rate plus time period.

If the cash flows aren't uniform, you must find the FV of each cash flow and then add them together. https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

1/10

6/4/2021

Sophia :: Welcome

You can only find the FV of multiple cash flows if they all have the same interest rate.

It is more complex to find the FV of annuities than the FV of irregular cash flows.

CONCEPT Valuing Multiple Cash Flows 3 Consider what you have learned about valuing bonds. A: Coupon rate = 4.5%, YTM = 5.2% B: Coupon rate = 5%, YTM = 4.5% C: Coupon rate = 3.5%, YTM = 3.75% D: Coupon rate = 4%, YTM = 4% Which of the bonds is selling at par?

D

B

C

A

CONCEPT Valuing Bonds 4 A corporation that makes shares of stock available for the public to purchase is an example of an __________.

issuer

intermediary https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

2/10

6/4/2021

Sophia :: Welcome

investor

investment trust

CONCEPT Stock Markets 5 Janice purchased a $1,000 10-year Treasury note that promised to pay her 1.125% interest every 6 months for the life of the loan. Which of those numbers is the par value of the note?

1.125

1,000

10

6

CONCEPT Key Characteristics of Bonds 6 Which of the following best describes a bond?

A debt security that typically pays an investor a fixed rate of return for a specified period of time.

A debt security that gives an investor an ownership share in the entity issuing the bond.

A debt instrument whose rate of return can fluctuate based on market conditions.

https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

3/10

6/4/2021

Sophia :: Welcome

A type of loan with a fixed rate of return that can be outstanding indefinitely.

CONCEPT Understanding Bonds 7 Which descriptor relates to the market-based approach for valuing corporations?

Considered the truest estimate

Considers the weighted average cost of capital

Involves an analysis of risk

Involves the average cost of a unit of company income

CONCEPT Valuing the Corporation 8 In the case of liquidation, shareholders have a right to company assets after __________.

debt-holders

founders

owners

directors

CONCEPT Defining Stock 9 https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

4/10

6/4/2021

Sophia :: Welcome

Select the statement that is true of common stock.

Common stock has a stronger claim to a company's assets than preferred stock.

Despite having fewer financial protections, common stock typically outperforms preferred stock.

Common stockholders do not have a right of first refusal when new stock is issued.

Companies issue dividends to common stockholders before preferred stockholders.

CONCEPT Types of Stock 10 Determine the value of a stock with the following variables using the constant growth model: Current annual dividend: $1.30 per share Required return rate: 7% Constant growth rate: 5%

$65.00

$63.75

$68.25

$69.55

CONCEPT Stock Valuation 11 Which of the following is an advantage of bonds for a potential investor?

https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

5/10

6/4/2021

Sophia :: Welcome

All bonds have the same interest rate, so they are predictable.

They typically generate higher returns than stocks.

The diversity of bond types means they respond easily to market needs.

Companies can choose to pay off bonds early.

CONCEPT Advantages and Disadvantages of Bonds 12 Select the true statement about reinvestment risk.

Callable bonds are less exposed to reinvestment risk.

Reinvestment risk is inversely related to interest rate risk.

It is the risk that a bond's price will fall below its par value.

A smart investor can eliminate reinvestment risk in addition to interest rate risk.

CONCEPT Bond Risk 13 You deposit $7,000 in a bank account that earns 2% compound interest annually. What is the value of your $7,000 in four years?

$6,440

$6,423 https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

6/10

6/4/2021

Sophia :: Welcome

$7,560

$7,577

CONCEPT Future Value, Single Cash Flows 14 You would like to have $8,000 in an account after four years' time. If the account earns 4% compounded interest yearly, how much would you have to deposit today?

$6,897

$7,249

$7,692

$6,838

CONCEPT Present Value, Single Cash Flows 15 Hunter is going to receive $3,000 in one year and he wants to know its equivalent value today. The process of determining the answer is called ______.

rating

pricing

discounting https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

7/10

6/4/2021

Sophia :: Welcome

compounding

CONCEPT Introduction to the Time Value of Money 16 Which of the following accurately describes a flat yield curve?

A curve that slopes downward as maturities lengthen and that indicates confidence that economic activity will grow in the future.

A curve that slopes upward as maturities lengthen and that indicates fear that the economy is about to enter a recession.

A curve with a minimal spread between short-term and long-term maturities and that indicates concern or doubt about the strength of the economy.

A curve that rises sharply and then levels off as maturities lengthen and that indicates a transition between a period of economic stagnation to one of growth.

CONCEPT The Basics of Interest Rates 17 Select the statement that correctly explains the relationship between interest rates and present or future value.

Assuming other variables stay the same, if the interest rate decreases, the future value of an investment increases.

The interest rate and the future value of an investment are inversely related.

Assuming other variables stay the same, if the interest rate decreases, the present value of an investment decreases.

https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

8/10

6/4/2021

Sophia :: Welcome

Assuming other variables stay the same, if the interest rate increases, the future value of an investment increases.

CONCEPT Additional Detail on Present and Future Values 18 Select the best definition of an ordinary annuity.

An annuity that makes payments forever

An annuity whose payments are made at the beginning of the period

An annuity whose payments can be made at any point during the period

An annuity whose payments are made at the end of the period

CONCEPT Annuities 19 Max is willing to take on a little risk when she buys a bond, but she wants to be compensated for her risk with an elevated interest rate. What kind of bond should she buy?

Subordinated

Convertible

Zero-coupon

Inflation-linked

CONCEPT https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

9/10

6/4/2021

Sophia :: Welcome

Types of Bonds 20 Select the pairing that is correctly matched.

Preferred stock: the value of the stock is not affected by market factors

Common stock: may only be sold on the secondary market

Preferred stock: stockholders' claim to assets is subordinate to that of debtholders

Common stock: usually has a pre-negotiated dividend

CONCEPT Rules and Rights of Common and Preferred Stock

About Contact Us Privacy Policy Terms of Use © 2021 SOPHIA Learning, LLC. SOPHIA is a registered trademark of SOPHIA Learning, LLC.

https://snhu.sophia.org/spcc/principles-of-finance/milestone take feedbacks/9333224

10/10...