Which one of the following portfolios will have a beta of zero?
A. A portfolio that is equally as risky as the overall market
B. A portfolio that consists of a single stock
C. A portfolio comprised solely of U. S. Treasury bills
D. A portfolio with a zero variance of returns
E. No portfolio can have a beta of zero.
Answer:
Johnson’s Tree Farm has a cash balance of $33 and a short-term loan balance of $200 at
the beginning of quarter 1. The net cash inflow for the first quarter is $89 and for the
second quarter there is a net cash outflow of $44. All cash shortfalls are funded with
short-term debt. The firm pays 2 percent of its prior quarter’s ending loan balance as
interest each quarter. The minimum cash balance is $25. What is the short-term loan
balance at the end of the first quarter?
A. $107
B. $111
C. $121
D. $128
E. $133
Answer:
Which one of the following best describes an agreement you make today to exchange
U.S. dollars for British pounds three months from now?
A. Forward trade
B. Spot trade
C. Arbitrage transaction
D. Cross-rate exchange
E. Eurocurrency transaction
Answer:
Maria is the sole proprietor of an antique store that she has operated at the same
location for the past 16 years. The store rents the space in which it is located but does
own all of the inventory and fixtures. The store has an outstanding loan with the local
bank but no other debt obligations. There are no specific loan covenants or assets
pledged as security for the loan. Due to a sudden and unexpected downturn in the
economy, the store is unable to generate sufficient funds to pay the loan payments due
to the bank. Which of the following options does the bank have to collect the money it
is owed?
I. Sell the inventory and use the cash raised to apply to the debt
II. Sell the store fixtures and use the cash raised to apply to the debt
III. Take funds from Maria’˜s personal account at the bank to pay the store’˜s debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store’˜s debt
A. I only
B. III only
C. I and II only
D. I, II, and III only
E. I, II, III, and IV
Answer:
On May 12, you purchased $3,700 of merchandise from a supplier. The terms of the
sale were 2/5, net 15. The discounted amount due is _____ which is payable no later
than ____.
A. $2,960; May 17
B. $3,515; May 27
C. $3,515; May 17
D. $3,626; May 17
E. $3,626; May 27
Answer:
Which one of the following has the highest effective annual rate?
A. 6 percent compounded annually
B. 6 percent compounded semiannually
C. 6 percent compounded quarterly
D. 6 percent compounded monthly
E. All the other answers have the same effective annual rate.
Answer:
Float is defined as the difference between which of the following?
A. Beginning cash balance and the ending cash balance as shown on a cash budget
B. Ledger balance and the available balance
C. Book balance and the ledger balance
D. Collections and disbursements for any given period of time
E. Available balance and the collected balance
Answer:
Auto Detailers is buying some new equipment at a cost of $228,900. This equipment
will be depreciated on a straight-line basis to a zero book value its eight-year life. The
equipment is expected to generate net income of $36,000 a year for the first four years
and $22,000 a year for the last four years. What is the average accounting rate of
return?
A. 15.48 percent
B. 17.76 percent
C. 18.09 percent
D. 22.68 percent
E. 25.34 percent
Answer:
We are evaluating a project that costs $1.68 million, has a five-year life, and has no
salvage value. Assume depreciation is straight-line to zero over the life of the project.
Sales are projected at 82,000 units per year. Price per unit is $43.29, variable cost per
unit is $22.18, and fixed costs are $623,000 per year. The tax rate is 34 percent, and we
require a 10 percent return on this project. What is the sensitivity of NPV to a 100-unit
change in the sales figure?
A. $3,998.40
B. $4,609.18
C. $4,897.20
D. $5,281.55
E. $5,557.12
Answer:
During the past year, Arther Anderson Services paid $360,800 in interest along with
$48,000 in dividends. The company issued $230,000 of stock and $200,000 of new
debt. The company reduced the balance due on the old debt by $225,000. What is the
amount of the cash flow to creditors?
A. -$88,200
B. $51,400
C. $161,800
D. $385,800
E. $585,800
Answer:
Which one of the following correctly states a qualification an issuer must meet to be
qualified to use Rule 415 for shelf registration?
A. The issuer must never have defaulted on its debt.
B. The issuer must have outstanding stock with a market value in excess of $250
million.
C. The issuer must never have violated the Securities Act of 1934.
D. The issuer must have an investment grade rating.
E. The issuer cannot have defaulted on its debt within the past five years.
Answer:
Which one of the following will decrease the aftertax cost of debt for a firm?
A. Decrease in the firm’s beta
B. Increase in tax rates
C. Increase in the risk-free rate of return
D. Decrease in the market price of the debt
E. Decrease in a bond’s yield to maturity
Answer:
Suzie Q’s has these projected sales estimates:
The company collects 18 percent of its sales in the month of sale, 69 percent in the
month following the month of sale, and another 11 percent in the second month
following the month of sale. Two percent of sales are never collected. What is the
amount of the September collections?
A. $25,863
B. $27,209
C. $29,406
D. $31,288
E. $34,516
Answer:
When you were born, your parents opened an investment account in your name and
deposited $500 into the account. The account has earned an average annual rate of
return of 4.8 percent. Today, the account is valued at $36,911.22. How old are you?
A. 74.47 years
B. 76.67 years
C. 81.08 years
D. 87.33 years
E. 91.75 years
Answer:
Arts and Crafts Warehouse wants to issue 15-year, zero coupon bonds that yield 7.5
percent. What price should it charge for these bonds if the face value is $1,000?
(Assume semiannual compounding.)
A. $308.15
B. $331.40
C. $356.08
D. $362.14
E. $369.94
Answer:
What is the expected return on a security given the following information?
A. 8.78 percent
B. 9.43 percent
C. 9.97 percent
D. 10.22 percent
E. 11.48 percent
Answer:
A firm has sales of $311,000 and net income of $31,600. Currently, there are 28,000
shares outstanding at a market price of $36 per share. What is the price-sales ratio?
A. 2.08
B. 3.24
C. 4.26
D. 5.15
E. 11.11
Answer:
The exchange rates in New York for $1 are Can$1.2381 and 0.6789. In Toronto, Can$1
will buy 0.5487. How much profit can you earn on $10,000 using triangle arbitrage?
A. $6.56
B. $6.88
C. $6.97
D. $7.03
E. $7.11
Answer:
What is the probability associated with a return that lies in the upper tail when the mean
plus two standard deviations is graphed?
A. 0.05 percent
B. 0.5 percent
C. 1.0 percent
D. 2.5 percent
E. 5.0 percent
Answer:
The Blue Lagoon is considering a project with a five-year life. The project requires
$110,000 of fixed assets that are classified as five-year property for MACRS. Variable
costs equal 71 percent of sales, fixed costs are $9,600, and the tax rate is 35 percent.
What is the operating cash flow for year 4 given the following sales estimates and
MACRS depreciation allowance percentages?
A. -$1,806
B. $640
C. $1,809
D. $2,342
E. $2,811
Answer:
You bought a share of 8.5 percent preferred stock for $40 last year. The market price for
your stock is now $88.10. What is your total return for last year?
A. 7.51 percent
B. 7.73 percent
C. 7.86 percent
D. 8.10 percent
E. 10.53 percent
Answer:
Which one of the following firms is most apt to have the shortest inventory period?
A. General merchandise retail store
B. Hardware store
C. Furniture store
D. Locomotive manufacturer
E. Delicatessen
Answer: