Multiple choice

1. If inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be: 

upward-sloping.

flat.

humped.

downward-sloping.

double-humped.

2. Which one of the following indicates that a project is expected to create value for its owners? 

Profitability index less than 1.0

Payback period greater than the requirement

Positive net present value

Positive average accounting rate of return

Internal rate of return that is less than the requirement

3. A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of $70 every year. What is the coupon rate? 

6.76 percent

7.00 percent

7.12 percent

13.51 percent

14.00 percent

4. The Pancake House pays a constant annual dividend of $1.25 per share. How much are you willing to pay for one share if you require a 15 percent rate of return? 

$7.86

$8.33

$10.87

$11.04

$11.38