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Exam (financial economics) Econ3420 exam review
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Financial economics final exam review
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Financial EconomicsVI Semester BA Economics
MCQ
1. To increase a given present value, the discount rate should be adjusted
a. upward
b. downward
c. same
d. none
2. In 3 years you are to receive 5,000. If the interest rate were to suddenly increase, the
present value of that future amount to you would
a. fall
b. rise
c. remain unchanged
d. cannot be determined without more information
3. Money has time value because:
a. Individuals prefer future consumption to present consumption.
b. Money today is more certain than money tomorrow
c. Money today is worth more than money tomorrow in terms of purchasing power.
d. There is a possibility of earning risk free return on money invested today.
e. (b), (c) and (d) above.
4. What does the price-to-earnings ratio (P/E) tell you?
a. How much each of a company's products sells for on average.
b. How much investors are willing to pay per unit of a company's earnings.
c. How much tax per unit investors are willing to pay.
d. None of the above
5. How is the P/E ratio calculated?
a. Market value/quick ratio
b. Earnings per share/market capitalization
c. Market value per share/earnings per share
d. None of the above
6. What is the most important use of the P/E ratio for investors?
a. It helps investors decide how much profit a company is likely to make in future.
b. It helps investors decide whether a company's shares are overpriced or underpriced.
c. It helps investors decide on the most appropriate risk to reward ratio.
d. None of the above
7. What does a high P/E ratio suggest?
a. A company shares are currently overpriced.
b. A company shares are currently underpriced.
, c. No relation
d. None of the above
8. When operating under a single-period capital-rationing constraint, you may first want to try
selecting projects by descending order of their in order to give yourself the best
chance to select the mix of projects that adds most to firm value.
a. Profitability index (PI)
b. Net present value (NPV)
c. Internal rate of return (IRR)
d. Payback period (PBP)
9. High P/E ratios tend to indicate that a company will
a. a) grow quickly
b. b) grow at the same speed as the average company
c. c) grow slowly
d. d) not grow
10. Historically, P/E ratios have tended to be .
a. Higher when inflation has been high
b. Lower when inflation has been high
c. Uncorrelated with inflation rates but correlated with other macroeconomic variables
d. Uncorrelated with any macroeconomic variables including inflation rates
11. The value of a bond and debenture is
a. Present value of interest payments it gets
b. Present value of contractual payments it gets till maturity
c. Present value of redemption amount
d. None of the above
12. Required rate of return>Coupon rate, the bond will be valued at
a. Premium
b. Par value
c. Discount
d. None of the above.
13. A bond is said to be issued at premium when
a. Coupon rate>Required returns
b. Coupon rate=Required returns
c. Coupon rate
d. None of the above
14. If the coupon rate is constant, the value of bond when close to maturity will be
a. Issued value
b. Par value
c. Redemption value
d. All of the above
15. Interest rates and bond prices
a. move in the same direction
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