WEEK ONE

1. (Calculating the default-risk premium)

At present, 10-year Treasury bonds are yielding 3.6% while a 10-year corporate bond is yielding 6.8%. If the liquidity-risk premium on the corporate bond is 0.5%, what is the corporate bond's default-risk premium? Note that a Treasuty security should have no default-risk premium and liquidity-risk premium.

The corporate bond's default-risk premium is Answer: %. (Round to one decimal place.)

2. Company A reports sales of $100,000 and net income of $15,000. Company B reports sales of $100,000 and net income of $10,000. Therefore

A.

Company B is creating less value for its shareholders than Company A.

B.

Company A's cash flow is $5,000 more than Company B's cash flow.

C.

Company A's cash flow may be higher or lower than Company B's cash flow even though A's net income is higher.

D.

Company B's accounts receivable must be higher than Company A's accounts receivable.

3. The three basic types of issues addressed by the study of finance are

A.

capital budgeting, investment analysis, and cash management.

B.

capital budgeting, working capital management, and investment analysis.

C.

capital budgeting, capital structure decisions, and working capital management.

D.

capital structure decisions, working capital management, and sustained profitability.

4. According to Principle 3, how should investors decide where to invest their money?(Select the best choice below.)

A.

By determining the expected EPS.

B.

By determining the lowest return.

C.

By determining if the return is more than expected given the level of risk.

D.

By determining the highest return.

PLEASE ANSWER EACH QUESTIONS FULLY AND COMPLETE!!!