BUSINESS BMAL 590 ALC 5.2

BUSINESS BMAL 590 ALC 5.2

 

1.            Which of the following assets is the most liquid?

 

a.            Stock

 

b.            Treasury bills

 

c.             Corporate bonds             

 

d.            Cash

 

2.            The ____ premium is compensation for the possibility that the borrower will not be able to pay the debt’s interest and principal on time.

 

a.            inflation risk

 

b.            maturity risk

 

c.             liquidity risk

 

d.            default risk

 

3.            Which of the following statements is correct?

 

a.            Large costs occur at the end of nuclear power plants' lives because these plants have to be closed down, and shutdown costs are high due to the difficulty of handling radioactive materials. For this reason, it is possible that a nuclear plant project could have two IRRs.          

 

b.            If the Federal Reserve Board lowered interest rates, this would, other things held constant, tend to favor short-term as opposed to long-term projects.                               

 

c.             For NPV versus IRR ranking conflicts to occur, the projects under consideration must have NPV profiles which cross one another. Crossing profiles can occur only if the two projects differ in the size of the required investment outlay.

 

d.            All of the above statements are false.

 

4.            Which of the following methods involves calculating an average beta for firms in a similar business and then applying that beta to determine the beta of its own project?

 

a.            Risk premium method.

 

b.            Pure play method.