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The difference between the price that a dealer is willing to pay and the price at which he
or she will sell is called the:
A. equilibrium.
B. premium.
C. discount.
D. call price.
Parkway Express needs $318,000 a week to pay bills. The standard deviation of the
weekly disbursements is $31,000. The firm has established a lower cash balance limit
of $60,000. The applicable interest rate is 4.5 percent and the fixed cost of transferring
funds is $65. Based on the BAT model, what is the opportunity cost of holding cash?
A. $3,873
B. $4,918
C. $5,207
D. $109,283
E. $110,440
Which of the following can affect a firm's sustainable rate of growth?
I. capital intensity ratio
II. profit margin
III. dividend policy
IV. debt-equity ratio
A. III only
B. I and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Absolute purchasing power parity is most apt to exist for which one of the following
items?
A. lumber
B. computer
C. silver
D. automobile
E. cell phone
The standard deviation of a portfolio:
A. is a measure of that portfolio's systematic risk.
B. is a weighed average of the standard deviations of the individual securities held in
that portfolio.
C. measures the amount of diversifiable risk inherent in the portfolio.
D. serves as the basis for computing the appropriate risk premium for that portfolio.
E. can be less than the weighted average of the standard deviations of the individual
securities held in that portfolio.
Suppose the spot and three-month forward rates for the yen are 128.79 and 133.85,
respectively. What is the approximate annual percent difference between the inflation
rate in the U.S. and in Japan?
A. 3.93 percent
B. 4.21 percent
C. 4.90 percent
D. 16.67 percent
E. 17.28 percent
Green Roof Motels has more cash on hand than its operations require. Thus, the firm
has decided to pay out some of its earnings in the form of cash to its shareholders. What
are these payments to shareholders called?
A. dividends
B. stock payments
C. repurchases
D. payments-in-kind
E. stock splits
Which one of the following earned the highest risk premium over the period 1926-
2007?
A. long-term corporate bonds
B. U.S. Treasury bills
C. small-company stocks
D. large-company stocks
E. long-term government bonds
Which one of the following is an example of unsystematic risk?
A. income taxes are increased across the board
B. a national sales tax is adopted
C. inflation decreases at the national level
D. an increased feeling of prosperity is felt around the globe
E. consumer spending on entertainment decreased nationally
Which one of the following is an investment risk that investors face in addition to firm-
based risk and market-based risk?
A. management-related risk
B. inflation risk
C. supply chain risk
D. interest rate risk
E. sentiment-based risk
Miller Sisters has an overall beta of 0.64 and a cost of equity of 11.2 percent for the
firm overall. The firm is 100 percent financed with common stock. Division A within
the firm has an estimated beta of 1.08 and is the riskiest of all of the firm's operations.
What is an appropriate cost of capital for division A if the market risk premium is 9.5
percent?
A. 15.12 percent
B. 15.38 percent
C. 15.63 percent
D. 15.77 percent
E. 16.01 percent
At the accounting break-even point, Swiss Mountain Gear sells 14,600 ski masks at a
price of $10 each. At this level of production, the depreciation is $58,000 and the
variable cost per unit is $4. What is the amount of the fixed costs at this production
level?
A. $29,600
B. $52,400
C. $61,300
D. $87,600
E. $145,600
Which one of the following best describes the concept of erosion?
A. expenses that have already been incurred and cannot be recovered
B. change in net working capital related to implementing a new project
C. the cash flows of a new project that come at the expense of a firm's existing cash
flows
D. the alternative that is forfeited when a fixed asset is utilized by a project
E. the differences in a firm's cash flows with and without a particular project
A firm has $16,718 in outstanding checks that have not cleared the bank. The firm also
has $13,450 in deposits that have been recorded by the firm but not by the bank. The
current available balance is $11,407. What is the status of the net float?
A. net collection float of $8,138
B. net collection float of $2,043
C. net collection float of $13,450
D. net disbursement float of $3,268
E. net disbursement float of $5,311
You recently overheard your boss telling someone that if he'd actually crunched some
numbers and done some analysis instead of just going with his instincts that he never
would have opened the new store in Centre City. Which one of the following caused
your boss to make a bad decision?
A. regret aversion
B. endowment effect
C. money illusion
D. affect heuristic
E. representativeness heuristic
Theresa adds $1,000 to her savings account on the first day of each year. Marcus adds
$1,000 to his savings account on the last day of each year. They both earn 6.5 percent
annual interest. What is the difference in their savings account balances at the end of 35
years?
A. $8,062
B. $8,113
C. $8,127
D. $8,211
E. $8,219
In the spot market, $1 is currently equal to A$1.4910. Assume the expected inflation
rate in Australia is 3.5 percent and in the U.S. 4.0 percent. What is the expected
exchange rate one year from now if relative purchasing power parity exists?
A. A$1.4810
B. A$1.4835
C. A$1.4875
D. A$1.4985
E. A$1.5005
Which of the following variables are included in the BAT model?
I. upper cash limit
II. interest rate on marketable securities
III. opportunity cost of holding cash
IV. fixed cost of each securities trade
A. II only
B. I and III only
C. II and IV only
D. II, III, and IV only
E. I, III, and IV only
Which one of the five Cs of credit refers to a firm's financial reserves?
A. character
B. capacity
C. collateral
D. conditions
E. capital
What is the closing value on this day for one March futures contract on silver?
Silver - 5,000 troy oz.: U.S. dollars and cents per troy oz.
A. $47,650
B. $48,000
C. $50,950
D. $51,220
E. $51,250
Which one of the following is the equity risk related to a firm's capital structure policy?
A. market
B. systematic
C. extrinsic
D. business
E. financial
Which one of the following is a project cash inflow? Ignore any tax effects.
A. decrease in accounts payable
B. increase in inventory
C. decrease in accounts receivable
D. depreciation expense based on MACRS
E. equipment acquisition
You have the opportunity to make a one-time sale if you will give a new customer 30
days to pay. You suspect there is a 15 percent chance this person will never pay you.
The sales price of the item the customer wants to buy is $289. Your variable cost on that
item is $156 and your monthly interest rate is 1.75 percent. Should you grant credit to
this customer? Why or why not?
A. yes; because the NPV of the potential sale is $113.05
B. yes; because the NPV of the potential sale is $85.43
C. no; because the NPV of the potential sale is -$133.00
D. no; because the NPV of the potential sale is -113.05
E. no; because the NPV of the potential sale is -$89.65
Based on past 26 years, Westerfield Industrial Supply's common stock has yielded an
arithmetic average rate of return of 9.63 percent. The geometric average return for the
same period was 8.57 percent. What is the estimated return on this stock for the next 4
years according to Blume's formula?
A. 8.70 percent
B. 8.92 percent
C. 9.13 percent
D. 9.38 percent
E. 9.50 percent
The maximum value of a convertible bond is theoretically:
A. equal to the conversion value minus the straight bond value.
B. equal to the face value of the bond multiplied by (1 + Conversion price).
C. limited to the maximum straight bond value.
D. limited by the face value of the bond.
E. unlimited.
Which one of the following methods of analysis provides the best information on the
cost-benefit aspects of a project?
A. net present value
B. payback
C. internal rate of return
D. average accounting return
E. profitability index
Assume the following balance sheets are stated at book value.
What will be the value of the equity account on the postmerger balance sheet assuming
that Meat Co. purchases Loaf, Inc. and the pooling of interests method of accounting is
used.
A. $26,700
B. $33,600
C. $35,800
D. $38,200
E. $46,100
Suppose the Japanese yen exchange rate is 114 = $1, and the United Kingdom pound
exchange rate is 1 = $1.83. Also suppose the cross-rate is 191 = 1. What is the arbitrage
profit per one U.S. dollar?
A. $0.0743
B. $0.0846
C. $0.0857
D. $0.0923
E. $0.0948
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030,
plus any accrued interest. The additional $30 is called which one of the following?
A. dirty price
B. redemption value
C. call premium
D. original-issue discount
E. redemption discount
Which one of the following statements is correct?
A. The money market refers to securities that mature in two years or less.
B. Banks are prohibited from investing cash surpluses on behalf of their customers on a
short- term basis.
C. Short-term securities tend to have a high degree of interest rate risk.
D. A cyclical firm may purchase marketable securities as part of its short-term financing
plan.
E. Corporations are not permitted to invest in money market mutual funds but can
invest in bank money market accounts.
Preston Milled Products currently sells a product with a variable cost per unit of $21
and a unit selling price of $40. At the present time, the firm only sells on a cash basis
with monthly sales of 2,800 units. The monthly interest rate is 0.5 percent. What is the
switch break-even point if the firm switched to a net 30 credit policy? Assume the
selling price per unit and the variable costs per unit remain constant.
A. 2,830 units
B. 2,910 units
C. 3,333 units
D. 3,414 units
E. 3,526 units
