Financial Management - Study Mode

[#526] Operating leverage x Financial leverage = ________
Correct Answer

(A) Combined Leverage

Explanation

Solution: The Combined Leverage (CL) is not a distinct type of leverage analysis, rather it is a product of the Operating Leverage and the Financial Leverage. The CL may be defined as the % change in EPS for a given % change in the sales level and may be calculated as follows: Combined Leverage = Operating Leverage x Financial Leverage
= % Change in EPS / % Change in sales

[#527] Real risk-free interest rate in addition with an inflation premium is equal to
Correct Answer

(B) quoted risk-free interest rate

Explanation

Solution: Real risk-free interest rate in addition with an inflation premium is equal to quoted risk-free interest rate. The Risk-Free Rate of return is the interest rate an investor can expect to earn on an investment that carries zero risk.

[#528] An increasing in interest rate leads to decline in value of
Correct Answer

(B) outstanding bonds

Explanation

Solution: An increasing in interest rate leads to decline in value of outstanding bonds. Outstanding Bonds means all Previously Issued Bonds, which remain outstanding as of the first interest and/or principal payment date following the current Fiscal Year excluding Bonds to be redeemed at a later date with proceeds of prior prepayments of Maximum Special Taxes.

[#529] Bonds issued by government and backed by U.S government are classified as
Correct Answer

(B) treasury bonds

Explanation

Solution: Bonds issued by government and backed by U.S government are classified as treasury bonds. A Treasury bond (T-bond) is a marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years.

[#530] Legal document in which rights of issuing corporation and bondholder's state is classified as
Correct Answer

(B) indenture

Explanation

Solution: Legal document in which rights of issuing corporation and bondholder's state is classified as indenture. An indenture is a legal and binding contract between a bond issuer and the bondholders.