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Week Two Journal: Present and Future Values

Name

BUS 401 Principles of Finance

Instructor James York

July 1, 2013

BUS 401 Week 2 (Teaching Net Present Value (NPV) and Future Value (FV)

BUS 401 Week 2 DQ 1 (Dreams Do Come True)

BUS 401 Week 2 DQ 2 (Present and Future Values, and Expected Returns)

. Question : Student Answer:

The longer we have to wait for a future amount to be received: the lower its present value will be.

the higher its present value will be. Time does not affect present value, so it doesnâ€™t matter how long we have to wait. Beyond 10 years the value doesnâ€™t change anymore because 10 years might as well be 20 years. The answer can be found in Section Instructor 4.3: The Time Value of a Single Cash Explanation: Flow. Points Received: Comments:

2.Question : Student Answer:

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Compounding means that: dollar interest the first year is multiplied by the number of years to get total interest. the same dollar amount of interest is paid each period.

interest is paid on interest earned in earlier periods. the rate of interest grows over time. Instructor The answer can be found in Section Explanation:4.2: Compound and Simple Interest. Points Received: Comments:

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An ordinary annuity has its first payment ______, but an annuity due has its first payment _________. Student at the beginning of the period; at the Answer: beginning of the period. at the beginning of the period; at the end of the period. at the end of the period; at the end of the period. at the end of the period; at the beginning of the period. Instructor The answer can be found in Section Explanation: 4.4: Valuing Multiple Cash Flows.

3.Question :

Points Received: Comments:

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4.Question :

The great majority of stock trades occur:

Student Answer:

in the secondary markets.

in the primary market. as IPOs (initial public offerings). directly between the company and investors. Instructor The answer can be found in Section Explanation: 5.1: Stocks. Points Received: Comments:

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5.Question :

Shareholders gains come in the form of:

Student Answer:

only dividends.

only capital gains. dividends and capital gains. interest payments. Instructor The answer can be found in the Explanation:introduction to Chapter 5. Points Received: Comments:

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Interest rates are given as annual rates. If semiannual (twice a year) 6.Question : compounding is being used, then you would make the following adjustments: Student Double the rate and double the Answer: number of years. Double the rate and halve the number of years. Halve the rate and halve the number of years. Halve the rate and double the number of years. The answer can be found in Section Instructor 4.3: The Time Value of a Single Cash Explanation: Flow. Points Received: Comments:

7.Question : Student Answer:

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Which of the following is true of the structure of a zero-coupon bond? an annuity of interest payments and a single principal payment at maturity

no interim interest payments but a variable payment at maturity, depending on interest rates an annuity of payments comprised of both interest and principal no interim interest payments and a single payment at maturity Instructor The answer can be found in Section Explanation: 5.2: Bonds. Points Received: Comments:

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8.Question :

If we make the assumption that a companyâ€™s dividends grow at some constant rate, then we can value the stock as:

Student Answer:

a growing perpetuity.

a growing annuity. a perpetuity. an annuity. Instructor The answer can be found in Section Explanation: 5.1: Stocks. Points Received: Comments:

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Which of the following is NOT true of preferred stock? Student Preferred stock generally pays a Answer: fixed dividend. Preferred stock is a perpetuity. Dividends on preferred stock are tax deductible. Preferred stock dividends have a higher priority than common stock dividends. Instructor The answer can be found in Section Explanation: 5.1: Stocks.

9.Question :

Points Received: Comments:

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Zeta Corporation just paid a $2.00 dividend. Analysts believe that Zeta Corporationâ€™s dividend will grow by 20% next year, and then settle into a 10 Question : constant growth regime at 5% per . year into the future. If investors assign a required rate of return of 12% to Zetaâ€™s stock, what should the stock sell for today? Student $30.00 Answer: $32.14 $34.29 $36.00 Instructor The answer can be found in Section Explanation: 5.1: Stocks. Points Received: