QUESTION 1

1. 1 Indicate whether the following statements are true or false: Retained profits is a source of funding.

   True

   False

1. 2 Indicate whether the following statements are true or false: Share capital is a form of a debt instrument.

   True

   False

1. 3 Indicate whether the following statements are true or false: Ordinary share holders wealth is increased by the capital growth in the shares and the dividends they receive.

   True

   False

1. 4 Indicate whether the following statements are true or false: Ordinary share holder typically has lower risk than bond investors.

   True

   False

1. 5 Indicate whether the following statements are true or false: The Johannesburg stock Exchange (JSE) is a typical example of a money market.

   True

   False

1. 6 Indicate whether the following statements are true or false: Bonds are examples of money market instruments.

   True

   False

1. 7 Indicate whether the following statements are true or false: In economic theory, the required rate of return should be equal to the companys cost of capital, which is the cost of equity capital, weighted by the relative amount of each in the companys capital structure.

   True

   False

1. 8 Indicate whether the following statements are true or false: Compounded interest is only payed on the initial principal amount.

   True

   False

1. 9 Indicate whether the following statements are true or false: If the interest due at the end of an interest period is added to the principal, so that the interest computed for the next interest period is based on this new interest amount (old principal plus interest), then the interest is said to have been compounded.

   True

   False

1. 10 Indicate whether the following statements are true or false: If you are a depositor and the bank offer you an option of 8% simple interest and 8% compounded interest on your deposit, you should choose the compounded interest rate option.

   True

   False

1. 11 Indicate whether the following statements are true or false: If you and a friend deposit the same amount of money at the same interest rate today and you earn daily compounded interest and your friend earns monthly compounded interest, you will have more money in the bank, relative to your friend, at the end of two years assuming not you or your friend makes any additional deposits.

   True

   False

1. 12 Indicate whether the following statements are true or false: Quoted interest rate is known as the real rate.

   True

   False

1. 13 Indicate whether the following statements are true or false: Interest rates can be negative.

   True

   False

1. 14 Indicate whether the following statements are true or false: The return on an investment represents the compensation for taking on a certain degree of risk. Return measures the increase in wealth of the holder of the particular instrument.

   True

   False

1. 15 Indicate whether the following statements are true or false: Two assets with different expected returns and different standard deviations can be compared to one another by calculating and comparing their weighted cost of capital.

   True

   False