Personal Finance Quiz Paper

PART 1. Total 40 marks ( 2 marks each).
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) 
Assume that you borrow $2000 at 10% annual interest to finance a new business project. For this loan to be profitable, the minimum amount this project must generate in annual earnings is 
1) 
_______
A) 
$201. 
B) 
$200. 
C) 
$400. 
D) 
$199. 2) 
Which of the following statements about the characteristics of debt and equities is true? 
2) 
_______
A) 
They can both be long-term financial instruments.
B) 
Bonds pay dividends.
C) 
The income from bonds is typically more variable than that from equities.
D) 
Bond holders are residual claimants. 3) 
Which of the following is
B) 
definitions change all the time.
C) 
the government considers money supply statistics to be confidential and refuses to publish them.
D) 
economists cannot agree if currency should be considered money. 5) 
When we say that money is a stock variable, we mean that 
5) 
_______
A) 
it is sold in the equity market.
B) 
we must attach a time period to the measure.
C) 
money never loses purchasing power.
D) 
the quantity of money is measured at a given point in time. 6) 
If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is 
6) 
_______
A) 
7.5 percent. 
B) 
5 percent. 
C) 
2.5 percent. 
D) 
10
7) 
_______
A) 
not comparable to 
B) 
greater than
C) 
equal to 
D) 
less than 8) 
Which of the following bonds would you prefer to be buying? 
8) 
_______
A) 
A $10,000 face-value security with a 10 percent coupon selling for $9,000
B) 
A $10,000 face-value security with a 7 percent coupon selling for $10,000
C) 
A $10,000 face-value security with a 10 percent coupon selling for $10,000
D) 
A $10,000 face-value security with a 9 percent coupon selling for $10,000 9) 
An equal increase in all bond interest rates 
9) 
_______
A) 
has no effect on the returns to bonds.
B) 
decreases the return to all bond maturities by an equal amount.
C) 
decreases long-term bond returns more than short-term bond returns.
D) 
increases the return to all bond maturities by an equal amount.

10) 
Bonds whose term-to-maturity is longer than the holding period are subject to 
10) 
______
A) 
exchange-rate risk. 
B) 
interest rate risk.
C) 
inflation. 
D)