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A general decline in prices also decreases the value of money. Treasury bond has maturity between 1 yr < t lessthanequalto 10 years Inventory is not part of the liquid assets because it is mostly physical in nature Retail businesses' inventory includes goods in process and raw material. Capital structure refers to respective proportion of the two sources of fund on the balance sheet. Prime rate is conventionally more than 6% above fed funds rate. When fed funds rate goes up. money supply goes up. too. If the Federal Reserve sells more Treasury securities, overall interest rates go up. If the Federal Reserve sells more Treasury securities, money supply goes up. The Federal Reserve has the power to fix the min rate of interest that commercial banks may pay on savings account. Corporate bonds are riskier than US Treasury, so they pay default risk premium over what Treasury pays to stay competitive in the market. Accounting equation refers to the relations between line items on the balance sheet, and can be summarized as "Assets = (Liabilities + Equity) - (Debt + Net worth)". Income statement represents the process to arrive at net profit through the firm's normal operation. For most companies primary source of income is investment income. Which of the following is a correct interpretation of "r = i -pi" a. Nominal interest rate is real interest rate adjusted for inflation. b. Real interest rate is inflation adjusted for nominal interest rate. c. Inflation is real interest rate adjusted for nominal interest rate. d. Negative real interest rate is possible. e. Negative real interest rate is favorable to the lenders. Which of the following is not a correct statement? a. Accounts receivable represents credit sale, and thus, cannot be collected until maturity. b. Accounts receivable mainly consists of promissory notes and credit sales. c. Accounts receivable is part of the current assets. d. Accounts payable mainly consists of purchase of inventory on credit and notes payable. e. Accounts payable is part of the current liabilities. Which of the following is not a correct statement? a. When promissory notes are factored, the full face value is not redeemed. b. Accounts receivable arc discounted in the same way as promissory notes. c. When accounts receivable are factored, invoices are irrelevant. d. Promissory notes are a type of commercial paper. e. Commercial paper is a short-term corporate debt.
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