Question 31. The prime rate

31. The prime rate
A) is the effective rate of interest for banks’ best customers.
B) has been quite volatile during the past two decades, moving as much as 8 percentage points
in a 12-month period.
C) is usually lower than treasury bill rates.
D) none of the above
32. Accounts receivable may be used as a source of financing by
A) pledging the receivables as loan collateral.
B) factoring the receivables to a finance company.
C) selling securities backed by the receivables.
D) all of the above
33. The required compensating balance is usually computed as a
A) percentage of customer loans outstanding.
B) factor of accounts receivable.
C) percentage of the bank’s commitments toward future loans.
D) a and c are correct
Chapter 9 The Time Value of Money
34. The concept of time value of money is important to financial decision making because
A) it emphasizes earning a return on invested capital.
B) it recognizes that earning a return makes $1 worth more today than $1 received in the future.
C) it can be applied to future cash flows in order to compare different streams of income.
D) all of the above
35. Mr. Nailor invests $5,000 in a certificate of deposit at his local bank. He receives annual
interest of 8% for 7 years. How much interest will his investment earn during this time period?
A) $2,915
B) $3,570
C) $6,254
D) $8,570
36. Mr. Fish wants to build a house in 10 years. He estimates that the total cost will be
$170,000. If he can put aside $10,000 at the end of each year, what rate of return must he earn
in order to have the amount needed?
A) Between 11% and 12%
B) Between 8% and 9%
C) 17%
D) None of the above
Chapter 10 Valuation and Rates of Return
37. A 20-year bond pays 12% on a face value of $1,000. If similar bonds are currently yielding
9%, What is the market value of the bond? Use annual analysis.
A) over $1,000
B) under $1,000
C) over $1,200
D) not enough information given to tell
38. An issue of preferred stock is paying an annual dividend of $5. The growth rate for the firm’s
common stock is 14%. What is the preferred stock price if the required rate of return is 11%?
A) $45.45
B) $41.67
C) $35.71
D) none of the above
39. Which of the following does not influence the yield to maturity for a security?
A) required real rate of return
B) risk free rate
C) business risk
D) yields of similar securities

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