1) Firms exposed to the risk of interest rate changes may ...
1) Firms exposed to the risk of interest rate changes may reduce that risk by
A. pledging or factoring accounts receivable.
B. hedging in the financial futures market.
C. hedging in the commodities market.
D. obtaining a Eurodollar loan.
2) LIBOR is
A. the interest rate paid by the British government on its long-term bonds.
B. an interest rate paid on Eurodollar loans in the London market.
C. an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. banks.
D. a resource used in production
3) Commercial paper is very popular with many firms because
A. it is very easy to roll over (refinance) in times of economic turmoil.
B. it satisfies the firm's need for long-term funds.
C. there are no required lines of credits at the bank.
D. it can usually be issued below the prime rate.
4) All of the following are benefits of commercial paper to the corporation EXCEPT:
A. they provide prestige
B. there are no compensating balance requirements
C. they are less risky
D. it is often issued at below the prime interest rate
5) Dr. J. wants to buy a Dell computer which will cost $2,788 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?
A. $531.81
B. $627.93
C. $823.15
D. $697.00
6) As the time period until receipt increases, the present value of an amount at a fixed interest rate
A. Not enough information to tell.
B. remains the same.
C. increases.
D. decreases.
7) To save for her newborn son's college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value?
A. $55,750.
B. $34,931.
C. $63,440.
D. $7,690.
8) Kathy has $60,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years?
A. between 10% and 11%
B. between 8% and 9%
C. between 9% and 10%
D. between 7% and 8%
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