Test IV: "Interest Rate. Cost of International Capital"

The shifts in the demand for bonds are not due to:
1. Expected returns on bonds relative to alternative assets
2. Expected inflation
3. Liquidity of bonds relative to alternative assets.
4. Government activities (public deficits).
The shifts in the supply for bonds are not due to:
1. Expected profitability of investment opportunities (increase);
2. Expected inflation (real cost of financing is falling down);
3. Liquidity of bonds relative to alternative assets.
4. Government activities (public deficits).
"Fisher effect" means that:
1. when expected inflation rises, interest rates will rise
2. when expected inflation decreases, interest rates will rise
3. when expected inflation decreases, interest rates will decrease
4. when expected inflation rises, interest rates will decrease
"Liquidity preference framework" stated by Keynes means that:
1. Bond Demand + Money Supply is equal with Bond Supply + Money Demand
2. Bond Demand + Money Demand is equal with Bond Supply + Money Supply
3. Bond Supply + Money Demand is equal with Bond Demand + Money Supply
4. Bond Demand - Money Demand is equal with Bond Supply - Money Supply
Shifts in the demand for money could be generated by:
1. Increasing the income level;
2. Expected returns on bonds relative to alternative assets
3. Expected profitability of investment opportunities (increase);
4. Liquidity of bonds relative to alternative assets.
Shifts in the supply for money can be generated by:
1. Ministry of Finance
2. Market equilibrium
3. Market Stability
4. Central Bank expansionary monetary policy
If the real interest rate is 3% and the inflation rate is 5% than nominal interest rate will be:
1. 11%
2. 8,15%
3. 7%
4. 9%
5. none
If the 1 month nominal interest rate for USD is 2% than 1 year effective interest rate will be:
1. 24%
2. 26,8%
3. 27,2%
4. 28%
5. none
If nominal value for 6 month T-Bills is 10 USD and issuing price is 9 USD than 1 year risk free interest rate is:
1. 23,5%
2. 20,1%
3. 32,4%
4. 25,5%
Default risk in case of risk structure of interest rate define:
1. the chance that the issuer of the bond will be unable to make interest payments or pay off the face value at the maturity;
2. tha chance that the investor not be recovered for its losses.
3. the chance that interest rate be higher then today.
4. the chance that currency in which is expressed the credit be stronger than today.
Liquidity in the case of risk structure of interest rate definest:
1. the capacity of a security to be sold before the maturity
2. the capacity of a security to be cheaply and quickly converted into cash
3. the capacity of a security to be converted in other currency
4. the capacity of a security to be resold to other investor.
Securities with identical risk, liquidity and income tax characteristics may have different interest rates because:
1. the liquidity is different
2. the term structure is changing
3. the maturity is different
4. the default risk is higher.
Securities with longer maturities usually have
1. a higher yield
2. a lower yield
3. a higher liquidity
4. a lower time value
If short term securities offer a higher yield, then the curve is said to be:
1. "transposed"
2. "inverted"
3. "doubled"
4. "implied"
The present value for a payoff of 100.000 after 5 years, calculated at a discount rate of 9% is:
1. 64993 USD
2. 56778 USD
3. 78991 USD
4. 86662 USD
5. none
Present value for a credit of 500000 USD, interest rate of 10% / year annually paid, equally reimbursed, 5 year maturity calculated at a discount rate of 11% is:
1. 488145 USD
2. 512978 USD
3. 698714 USD
4. 550417 USD
5. none
Current Yield for a credit of 500000 USD, interest rate of 10% / year annually paid, equally reimbursed, 5 year maturity calculated at a discount rate of 11% is:
1. 6%
2. 11%
3. 10%
4. 14%
5. none
If the inflation rate for one year is 20%, the present value of 1000 USD payoff at the end of the year is:
1. 917 USD
2. 920 USD
3. 913 USD
4. 900 USD
5. none
The cost of capital (IRR) in case of a bond issuing for 500000 USD, face value 10 USD / bond, issuing price 9 USD / bond, maturity 5 years, equally reimbursed, coupon rate of 10% is:
1. 10%
2. 14,5%
3. 12,3%
4. 11,4%
5. none
NPV is:
1. more difficult to be calculated than IRR;
2. based on a discount rate that should be estimated;
3. is always positive;
4. can't be expressed in different currencies.
When compare different financing alternatives we should use:
1. IRR criteria
2. NPV criteria
3. NPV and IRR criteria
4. PV and IRR criteria
IRR is:
1. impossible to be calculated in few cases;
2. highly dependent from FX rate;
3. very easy to be manually calculated;
4. it is always different from interest rate;
If the cost of credit is 11%, the cost of bonds is 12% and the cost of equity is 13% and the company decided to obtain 500.000 euro as a syndicated loan, 300000 euro as an international public issue for bonds and 200000 euro as an international public issue for equities than the WACC is:
1. 11,7%
2. 12,7%
3. 13,8%
4. 14,9%
5. none
If the risk free rate for a market is 5%, the market premium is 4% and the WACC for a financing plan is 11% than the company should:
1. do nothing;
2. modify the finance structure in order to give a higher importance to the financing resources with the highest cost;
3. find other less costly financing resources;
4. use the reinvestment of the profit.
Capital structure optimization doesn't mean:
1. trying to find new financing resources with a lower cost according to the risk level of the borrower
2. modifying the credit condition in terms of reimbursement
3. rising the dividend rate.
4. diversifying international your financing

Test IV: "Interest Rate. Cost of International Capital"

Multiple Choice Test