If an investor had a choice of receiving $1,000 today, or $1,000 in five years, which would the average investor prefer?
A) $1,000 in five years because they are not good at saving money.
B) $1,000 today because it will be worth more than $1,000 received in five years.
C) $1,000 in five years because it will be worth more than $1,000 received today.
D) Investors would be indifferent to when they would receive the $1,000.
E) None of the above.
Which of the following should be considered when assessing the financial impact of business decisions?
A) The amount of projected earnings
B) The risk-return tradeoff
C) The timing of projected earnings; i.e., when they are expected to occur
D) All of the above
Which of the following is most likely to motivate executives to maximize shareholder wealth?
A) Tying bonuses to cost reductions and meeting budget goals
B) Offering them relatively high salaries
C) Tying annual bonuses to increases in annual profits
D) Compensating them with stock options that can only be exercised after five years
If one security has a greater risk than another security, how will investors respond?
A) They will require a lower rate of return for the investment that has greater risk.
B) They would be indifferent regarding their expectation of rates of return for either investment.
C) They will require a higher rate of return for the investment that has greater risk.
D) None of the above.
How could you compensate an investor for taking on a significant amount of risk?
A) Increase the expected rate of return
B) Raise more debt capital
C) Offer stock at a higher price
D) Increase sales
