23 Jun Question I: Multiple Choice (2
Question I: Multiple Choice (2 marks each X 26 questions for a total of 52 marks)
Choose the alternative that BEST answers each of the following questions.
1. Which of the below is the most important determinant of how many years into the future you should project a companys cash flows when doing a discounted cash flow analysis?:
A) A companys tax rate.
B) A companys cost of debt.
C) The growth rate of the companys projections.
D) The expected capital expenditures of a company.
2. What is the difference between a Primary Market and a Secondary Market in the context of stock markets?
A) A Primary Market is the major exchange in a country and the Secondary Market is the “growth” exchange (i.e. NYSE vs. NASDAQ).
B) A Primary Market involves the issue of new securities and the Secondary Market involves the trading of existing securities.
C) A Primary Market is the main market that investors trade in (i.e. NYSE) and the Secondary Market is otherwise known as the Over The Counter, or “OTC”, market.
D) A Primary Market is a large stock market, such as the NYSE, and a Secondary Market is a relatively small stock market, such as the TSX.
3. A mother sets aside $10,000 in an account for her newly-born daughter with the intention of funding her college education in 18 years. The mother expects that the market interest rate will be 5% for the first 10 years, but that it will climb to 10% for the following 8 years. How much will the daughter have as she enters college in 18 years?
A) $16,288.95
B) $34,916.80
C) $35,085.40
D) $36,758.04
4. Matthew just purchased a house for $250,000. His down payment is $70,000 and the remaining amount will be financed using a 20-year mortgage. The interest rate on this mortgage is 5.6% compounded semi-annually and Matthew will make monthly mortgage payments. How much will the monthly payments be?
A) $987
B) $1,242
C) $1,026
D) $1,725
5. You plan to borrow $1,000 and repay it with five equal annual payments at an interest rate of 12%. You have a choice of making the payments at the end of each period, or at the beginning of each period. If you choose to make the payments at the beginning of each period rather than at the end, how much smaller will the payments be?
A) $28.15
B) $36.42
C) $29.72
D) $18.69
6. You are considering creating a portfolio with 100 securities which are equally weighted. Which of the following statements is the most true when determining the risk of your portfolio?
A) The sum of the risks of the individual securities is the most important factor.
B) The weighted average expected returns of the portfolio is the most important fa
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