FIN 200 CheckPoint Week Eight Quiz

This document of FIN 200 CheckPoint Week Eight Quiz includes answers to the next questions: 1) Firms exposed to the risk of interest rate changes may reduce that risk by A. hedging in the financial futures market. B. hedging in the commodities market. C. pledging or factoring accounts receivable. D. obtaining a Eurodollar loan. 2) LIBOR is A. an interest rate paid on Eurodollar loans in the London market. B. an interest rate paid by European firms when they borrow Eurodollar deposits from U.S. banks. C. the interest rate paid by the British government on its long-term bonds. D. a resource used in production. 3) A firm has invested in corporate bonds; it may engage in a financial futures contract in order to protect itself from A. rising interest rates. B. inflation. C. changes in hedging activities. D. declining interest rates. 4) Commercial paper is very popular with many firms because A. it satisfies the firm’s need for long-term funds. B. there are no required lines of credits at the bank. C. it is very easy to roll over (refinance) in times of economic turmoil. D. it can usually be issued below the prime rate 5) Under what conditions must a distinction be made between money to be received today and money to be received in the future? A. When idle money can earn a positive return. B. When there is no risk of nonpayment in the future. C. When current interest rates are different from expected future rates. D. A period of recession. 6) As the time period until receipt increases, the present value of an amount at a fixed interest rate A. remains the same. B. increases. C. Not enough information to tell. D. decreases. 7) To save for her newborn son’s college education, Lea Wilson will invest $1,000 at the beginning of each year for the next 18 years. The interest rate is 12 percent. What is the future value? A. $34,931. B. $63,440. C. $55,750. D. $7,690. 8) Mr. Nailor invests $5,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much return will his investment earn during this time period? A. $3,570 B. $6,254 C. $8,570 D. $2,915 3) Which of the following is the largest category of asset-backed securities? A. Automobile Loans B. Home Equity Loans C. Manufactured Housing Loans D. Student Loans 1) Commercial paper that is sold without the use of an actual paper certificate is known as A. dealer paper. B. finance paper. C. term paper. D. book-entry paper. 5) Sharon Smith will receive $1 million in 50 years. The discount rate is 14%. As an alternative, she can receive $2,000 today. Which should she choose? A. $2,000 today. B. the $1 million dollars in 50 years. C. need more information. D. she should be indifferent 8) Kathy has $60,000 to invest today and would like to determine whether it is realistic for her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What return must she achieve in order to buy her home in 10 years? A. between 8% and 9% B. between 7% and 8% C. between 10% and 11% D. between 9% and 10%

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