Exam 2 Practice Questions

1. The future value of $100 received today and deposited at 6 percent for four years is:
A) $126.
B) $ 79.
C) $185.
D) $146.
2. The present value of $100 to be received 10 years from today, assuming an opportunity
cost of 9 percent, is:
A) $236.
B) $699.
C) $ 42.
D) $ 75.
3. The annual rate of return is variously referred to as the:
A) discount rate.
B) opportunity cost.
C) cost of capital.
D) all of the above.
4. The ________ rate of interest is the actual rate charged by the supplier and paid by the
demander of funds.
A) nominal
B) real
C) risk-free
D) inflationary
5. Generally, long-term loans have higher interest rates than short-term loans because of:
A) the general expectation of higher future rates of inflation.
B) lender preferences for shorter-term, more liquid loans.
C) greater demand for long-term rather than short-term loans relative to the supply of
such loans.
D) all of the above.

Exam 2 Practice Questions

6. Key differences between common stock and bonds include all of the following EXCEPT:
A) common stockholders have a voice in management; bondholders do not.
B) common stockholders have a senior claim on assets and income relative to
bondholders.
C) bonds have a stated maturity but stock does not.
D) interest paid to bondholders is tax-deductible but dividends paid to stockholders are
not.
7. Last year Mike bought 100 shares of Dallas Corporation common stock for $53 per share.
During the year he received dividends of $1.45 per share. The stock is currently selling
for $60 per share. What rate of return did Mike earn over the year?
A) 11.7 percent
B) 13.2 percent
C) 14.1 percent
D) 15.9 percent
8. An investment advisor has recommended a $50,000 portfolio containing assets R, J, and
K; $25,000 will be invested in asset R, with an expected annual return of 12 percent;
$10,000 will be invested in asset J, with an expected annual return of 18 percent; and
$15,000 will be invested in asset K, with an expected annual return of 8 percent. The
expected annual return of this portfolio is:
A) 12.67%.
B) 12.00%.
C) 10.00%.
D) unable to be determined from the information provided.

Exam 2 Practice Questions

Answer Key:
1.A
2.C
3.D
4.A
5.D
6.B
7.D
8.B