Question

1. Money market assets (cash & accounts receivables) have a longer term to maturity and are thus more volatile that capital market assets (stocks & bonds).

True or false

2. Maximizing shareholder value of the firm is the primary goal of financial management.

True or false?

3. Using semi-annual compounding rather than annual compounding will increase the future value of a single sum or n annuity.

True or false?

Answer #1

1. False

Money market assets have been issued for a short term or overnight and not longer than 1 year. Money market assets is less volatile in comparison to capital market assets.

Money market is traded between banks, financial institutions. On the other hand capital market assets is traded between broker, investor etc.

2. True

Primary goal of financial management is to maximizing shareholders value of the firm. i.e maximize wealth of owner, market share and minimize cost/ expenses of firm.

3. True

Semi- annually compunding increase the future value of a single sum. This happen because we get additional interest on interest which is incurred on principal amount.

So we can say that compounding is interest on principal sum plus previously earned interest.

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Assets
Liabilities
Cash
$ 14,000
Accounts payable
$ 16,000
Accounts receivable
19,000
Bonds payable
78,000
Inventory
29,000
Total
liabilities
$ 94,000
Prepaid Expenses
12,400
Stockholders’ Equity
Total current assets
74,400
Preferred stock
$ 24,000
Plant and equipment, net
203,200
Common stock
59,000
Total Assets
$ 277,600
Paid-in capital in excess of par
29,000
Retained earnings
71,600
Total stockholders’
equity
183,600
Total liabilities & stockholders’ equity
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