Managerial Finance MCQ Questions & Solutions

Select one:
a. The present value of the ordinary annuity must exceed the present value of the annuity due, but the future
value of an ordinary annuity may be less than the future value of the annuity due.
b. The present value of the annuity due exceeds the present value of the ordinary annuity, while the future
value of the annuity due is less than the future value of the ordinary annuity.
c. The present value of the annuity due exceeds the present value of the ordinary annuity, and the future
value of the annuity due also exceeds the future value of the ordinary annuity.
d. If interest rates increase, the difference between the present value of the ordinary annuity and the present
value of the annuity due remains the same.
e. Answers a and d are correct.

Select one:
a. The present value of an annuity due will exceed the present value of an ordinary annuity (assuming all else
equal).
b. The future value of an annuity due will exceed the future value of an ordinary annuity (assuming all else
equal).
c. The nominal interest rate will always be greater than or equal to the effective annual interest rate.
d. Statements a and b are correct.
e. All of the statements above are correct.

Select one:
a. The discount rate decreases.
b. The cash fows are extended over a longer period of time, but the total amount of the cash fows remains the same.
c. The discount rate increases.
d. Answers b and c above.
e. Answers a and b above.

Select one:
a. $2,030.21
b. $5,000.00
c. $8,091.12
d. $8,354.50
e. $9,020.10

Select one:
a. $5,402.69
b. $6,301.70
c. $6,756.76
d. $8,432.10
e. $9,259.26

Select one:
a. $1,171
b. $1,126
c. $1,082
d. $1,163
e. $1,008

Select one:
a. $ 670.44
b. $ 842.91
c. $1,169.56
d. $1,522.64
e. $1,348.48

Select one:
a. $ 670.43
b. $ 842.91
c. $1,169.56
d. $1,348.48
e. $1,522.64

Select one:
a. $ 9,851
b. $13,250
c. $11,714
d. $15,129
e. $17,353

Select one:
a. $122.02
b. $105.10
c. $135.41
d. $120.90
e. $117.48

Select one:
a. All else equal, long-term bonds have more interest rate risk than short-term bonds.
b. All else equal, higher coupon bonds have more reinvestment risk than low coupon bonds.
c. All else equal, short-term bonds have more reinvestment risk than do long-term bonds.
d. Statements a and c are correct.
e. All of the statements above are correct.

Select one:
a. All else equal, if a bond’s yield to maturity increases, its price will fall.
b. All else equal, if a bond’s yield to maturity increases, its current yield will fall.
c. If a bond’s yield to maturity exceeds the coupon rate, the bond will sell at a premium over par.
d. All of the answers above are correct.
e. None of the answers above is correct.

Select one:
a. If a bond’s yield to maturity exceeds its annual coupon, then the bond will be trading at a premium.
b. If interest rates increase, the relative price change of a 10-year coupon bond will be greater than the
relative price change of a 10-year zero coupon bond.
c. If a coupon bond is selling at par, its current yield equals its yield to maturity.
d. Both a and c are correct.
e. None of the answers above is correct.

Select one:
a. The bond’s yield to maturity is 9 percent.
b. The bond’s current yield is 9 percent.
c. If the bond’s yield to maturity remains constant, the bond’s price will remain at par.
d. Both answers a and c are correct.
e. All of the answers above are correct.

Select one:
a. Junk bonds typically have a lower yield to maturity relative to investment-grade bonds.
b. A debenture is a secured bond which is backed by some or all of the firm’s fixed assets.
c. Subordinated debt has less default risk than senior debt.
d. All of the statements above are correct.
e. None of the statements above is correct.

Select one:
a. $905.35
b. $1,102.74
c. $1,103.19
d. $1,106.76
e. $1,149.63

Select one:
a. $619
b. $674
c. $761
d. $828
e. $902

Select one:
a. $ 941.36
b. $1,051.25
c. $1,115.57
d. $1,391.00
e. $ 825.49

Select one:
a. If a bond sells for less than par, then its yield to maturity is less than its coupon rate.
b. If a bond sells at par, then its current yield will be less than its yield to maturity.
c. Assuming that both bonds are held to maturity and are of equal risk, a bond selling for more than par with
ten years to maturity will have a lower current yield and higher capital gain relative to a bond that sells at par.
d. Answers a and c are correct.
e. None of the answers above is correct.

Select one:
a. The market value of a bond will always approach its par value as its maturity date approaches, provided
the issuer of the bond does not go bankrupt.
b. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would
probably observe an immediate increase in bond prices.
c. The total yield on a bond is derived from interest payments and changes in the price of the bond.
d. Statements a and c are correct.
e. All of the statements above are correct.