**Answer True or False to each of the next five (5) statements.**

**1.** Treasury Bills are issued through competitive bidding process at discount from par.

2. In the capital market both short term and long term securities are traded, whereas only short term securities are traded in the money market.

3. Free cash flow represents the amount of money available to the firm, after it has met all operating needs and paid for investments in net fixed assets.

4. Three ratios of liquidity are net working capital, current ratio and acid - test ratio

5. The income statement represents changes within a time period, while the balance sheet reflects levels as at a particular period.

**Choose the letter a, b, c, or d that carries the appropriate response:**

6. _______________ Serve as intermediaries channelling the savings of individuals, businesses, and governments into loans and investments.

(a) Financial markets

(b) Financial institutions

(c) Securities Exchanges

(d) OTC markets

7. Of the following group of ratios, which would show the combined effect of liquidity, asset management and debt on the overall operating results?

(a) Liquidity ratios

(b) Debt ratios

(c) Coverage ratios

(d) Profitability ratios

8. XYZ Company Ltd. has EBIT of $1,500,00 million and a 15% tax rate. It had $270,000 in depreciation expenses with a $250,000 increase in working capital. It had another $170,000 in capital expenditures. What is its free cash flow?

(a) $1,125,000

(b) $ 2,850,000

(c) $ 1,950,000

(d) $ 1,500,000

9. Fast Cash Limited charges 1 percent (%) per week on their loans. Assume there are exactly 52 weeks in a year. What is the effective annual rate?

(a) 55.36%

(b) 67.77%

(c) 69.98%

(d) 57.35%

10. _________________ is an annuity that provides its holder with payment dollars at the beginning of each year.

(a) An annuity due

(b) A warrant

(c) A perpetuity

(d) An ordinary annuity

11. All of the following statements about bonds are true, except one. Choose the false statement.

(a) If the value of a bond, B_{o,} is less than its par value, the bond is selling at a discount.

(b) Bonds with short maturities will have less interest rate risk than bonds with longer maturities and equal features.

(c) As market interest rate increase bond prices increase.

(d) The discount rate of a bond is synonymous with the bond's required return.

12. The present value of a bond's _____________________________ determines the value of the bond.

**(a)** Dividend

**(b)** Coupon payment and maturity value

**(c)** Coupon payment

**(d)** Maturity value

13. If the returns on one asset move in the same direction as the returns on another asset then the asset are:

(a) Positively correlated

(b) not correlated

**(c)** negatively correlated

(d) perfectly positively correlated.

14. Another term for non-diversifiable risk is:

(a) Systematic risk

(b) non- systematic risk

(c) firm specific risk

(d) both b and c

15. All of the following statements about stock valuation are true, except one. Choose the false statement.

(a) It is easier to value stock than it is to find the value of bonds.

(b) The value of a share of stock depends on the cash flows investors can expect to by owning that stock

(c) The dividend valuation model assets that dividends continue being paid forever.

(d) The present value of a stock's dividend determines the value of the stock.

**Answer True or False to each of the next five (5) statements.**

**1.** Treasury Bills are issued through competitive bidding process at discount from par.

2. In the capital market both short term and long term securities are traded, whereas only short term securities are traded in the money market.

3. Free cash flow represents the amount of money available to the firm, after it has met all operating needs and paid for investments in net fixed assets.

4. Three ratios of liquidity are net working capital, current ratio and acid - test ratio

5. The income statement represents changes within a time period, while the balance sheet reflects levels as at a particular period.

**Choose the letter a, b, c, or d that carries the appropriate response:**

6. _______________ Serve as intermediaries channelling the savings of individuals, businesses, and governments into loans and investments.

(a) Financial markets

(b) Financial institutions

(c) Securities Exchanges

(d) OTC markets

7. Of the following group of ratios, which would show the combined effect of liquidity, asset management and debt on the overall operating results?

(a) Liquidity ratios

(b) Debt ratios

(c) Coverage ratios

(d) Profitability ratios

8. XYZ Company Ltd. has EBIT of $1,500,00 million and a 15% tax rate. It had $270,000 in depreciation expenses with a $250,000 increase in working capital. It had another $170,000 in capital expenditures. What is its free cash flow?

(a) $1,125,000

(b) $ 2,850,000

(c) $ 1,950,000

(d) $ 1,500,000

9. Fast Cash Limited charges 1 percent (%) per week on their loans. Assume there are exactly 52 weeks in a year. What is the effective annual rate?

(a) 55.36%

(b) 67.77%

(c) 69.98%

(d) 57.35%

10. _________________ is an annuity that provides its holder with payment dollars at the beginning of each year.

(a) An annuity due

(b) A warrant

(c) A perpetuity

(d) An ordinary annuity

11. All of the following statements about bonds are true, except one. Choose the false statement.

(a) If the value of a bond, B_{o,} is less than its par value, the bond is selling at a discount.

(b) Bonds with short maturities will have less interest rate risk than bonds with longer maturities and equal features.

(c) As market interest rate increase bond prices increase.

(d) The discount rate of a bond is synonymous with the bond's required return.

12. The present value of a bond's _____________________________ determines the value of the bond.

**(a)** Dividend

**(b)** Coupon payment and maturity value

**(c)** Coupon payment

**(d)** Maturity value

13. If the returns on one asset move in the same direction as the returns on another asset then the asset are:

(a) Positively correlated

(b) not correlated

**(c)** negatively correlated

(d) perfectly positively correlated.

14. Another term for non-diversifiable risk is:

(a) Systematic risk

(b) non- systematic risk

(c) firm specific risk

(d) both b and c

15. All of the following statements about stock valuation are true, except one. Choose the false statement.

(a) It is easier to value stock than it is to find the value of bonds.

(b) The value of a share of stock depends on the cash flows investors can expect to by owning that stock

(c) The dividend valuation model assets that dividends continue being paid forever.

(d) The present value of a stock's dividend determines the value of the stock.