Consider a two-year plain-vanilla swap. Fixed rate is 6%. Libor is currently 5.5%. Notional principal is
$ 10 million. Who pays whom how much when the swap is originated?

• A.Fixed receiver pays the fixed payer $25,000.
• B.Nobody pays anybody anything.
• C.Fixed payer pays the fixed receiver $50,000.

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The component cost of newly issued capital differs from the component cost of retained earnings in the following way

• A.The bond + premium approach doesn't work for new capital.
• B.Newly issued capital is usually issued at a lower par value than older existing common.
• C.Flotation costs are subtracted from the price received (P) in the calculation of (k).

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Which of the following represents the correct method of constructing common-sized financial statements?

• A.All balance sheet items are indexed to total equity while income statement items are indexed to net sales.
• B.All balance sheet items are indexed to the total of liabilities and owner's equity while income statement items are indexed to net sales.
• C.All balance sheet items are indexed to total assets while income statement items are indexed to gross sales.

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Zero-coupon bonds are bonds that

• A.have no coupon payment for a deferred period.
• B.are contracted to make periodic coupon payments.
• C.are not contracted to make periodic coupon payments.

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Which of the following statements is true with respect to a statistical decision and an economic decision?
I). When in conflict, a statistical decision must override an economic decision since the former is an objective test.
II). A statistical decision will always be objective whereas an economic decision may be subjective.
III). If the statistical decision is not to reject the null, it simply implies that the sample results were inconclusive.
IV). A statistical decision may easily be influenced by changing the level of significance of the test.

• A.I and III.
• B.II, III and IV.
• C.IV only.

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