Sugar and Spice stock is expected to produce the following returns given the various
states of the economy. What is the expected return on this stock?
A. 7.89 percent
B. 8.56 percent
C. 9.43 percent
D. 10.05 percent
E. 10.50 percent
Answer:
A call provision grants the bond issuer the:
A. right to contact each bondholder to determine if he or she would like to extend the
term of his or her bonds.
B. option to exchange the bonds for equity securities.
C. right to automatically extend the bond’s maturity date.
D. right to repurchase the bonds on the open market prior to maturity.
E. option of repurchasing the bonds prior to maturity at a prespecified price.
Answer:
Peterboro Supply has a current accounts receivable balance of $391,648. Credit sales
for the year just ended were $5,338,411. How long did it take on average for credit
customers to pay off their accounts during the past year?
A. 24.78 days
B. 26.78 days
C. 29.09 days
D. 31.15 days
E. 33.33 days
Answer:
What is the goal of financial management for a sole proprietorship?
A. Maximize net income given the current resources of the firm
B. Decrease long-term debt to reduce the risk to the owner
C. Minimize the tax impact on the proprietor
D. Maximize the market value of the equity
E. Minimize the reliance on fixed costs
Answer:
Manning, Inc. originally issued bonds that were rated investment grade. These bonds
have now been downgraded to junk status. Which one of the following terms applies to
this situation?
A. Called bond
B. Converted bond
C. Protected covenant
D. Fallen angel
E. Floating bond
Answer:
Consider the following financial statement information for Kirkwood United.
Assume all sales are on credit. How long is the cash cycle?
A. 28.21 days
B. 33.25 days
C. 51.03 days
D. 51.58 days
E. 53.57 days
Answer:
Explain the differences between total risk, unsystematic risk, and systematic risk.
Identify which risk is measured by standard deviation and which is measured by beta.
Answer:
Which one of the following methods of analysis is most appropriate to use when two
investments are mutually exclusive?
A. Internal rate of return
B. Profitability index
C. Net present value
D. Modified internal rate of return
E. Average accounting return
Answer:
Net capital spending is equal to:
A. ending net fixed assets minus beginning net fixed assets plus depreciation.
B. beginning net fixed assets minus ending net fixed assets plus depreciation.
C. ending net fixed assets minus beginning net fixed assets minus depreciation.
D. ending total assets minus beginning total assets plus depreciation.
E. ending total assets minus beginning total assets minus depreciation.
Answer:
You have $1,100 today and want to triple your money in 5 years. What interest rate
must you earn if the interest is compounded annually?
A. 18.08 percent
B. 19.90 percent
C. 22.15 percent
D. 24.57 percent
E. 27.21 percent
Answer:
Later this week, you are traveling from the U.S. to Canada for a week’s vacation. This
morning, you exchanged some U.S. dollars for Canadian dollars in preparation for that
trip. Which one of the following best describes this exchange?
A. Forward trade
B. Spot trade
C. Arbitrage transaction
D. Cross-rate exchange
E. Eurocurrency transaction
Answer:
There are two open seats on the board of directors. If two separate votes occur to elect
the new directors, the firm is using a type of voting that is best described as _____
voting.
A. simultaneous
B. straight
C. proxy
D. cumulative
E. sequential
Answer:
What is the price of a $1,000 face value bond if the quoted price is 102.1?
A. $102.10
B. $1,002.10
C. $1,020.01
D. $1,020.10
E. $1,021.00
Answer:
Kate owns a stock with a market price of $31 per share. This stock pays a constant
annual dividend of $0.60 per share. If the price of the stock suddenly increases to $36 a
share, you would expect the:
I. dividend yield to increase.
II. dividend yield to decrease.
III. capital gains yield to increase.
IV. capital gains yield to decrease.
A. I only
B. II only
C. III only
D. I and III only
E. II and IV only
Answer:
A firm has earnings before interest and taxes of $25,380 with a net income of $14,220.
The taxes amounted to $5,400 for the year. During the year, the firm paid out $43,800
to pay off existing debt and then later borrowed an additional $24,000. What is the
amount of the cash flow to creditors?
A. -$14,040
B. $19,800
C. $25,560
D. $28,440
E. $29,790
Answer:
Suppose you bought a 6 percent coupon bond one year ago for $929. The bond sells
today for $933. The face value is $1,000. If the inflation rate last year was 4.3 percent,
what was your total real rate of return on this investment?
A. 1.02 percent
B. 2.48 percent
C. 4.31 percent
D. 6.89 percent
E. 7.08 percent
Answer:
Tom earned $120 in interest on his savings account last year. Tom has decided to leave
the $120 in his account so that he can earn interest on the $120 this year. This process
of earning interest on prior interest earnings is called:
A. discounting.
B. compounding.
C. duplicating.
D. multiplying.
E. indexing.
Answer:
Assume you own a portfolio of diverse securities which are each correctly priced.
Given this, the reward-to-risk ratio:
A. for the portfolio must equal 1.0.
B. for the portfolio must be less than the market risk premium.
C. for each security must equal zero.
D. of each security is equal to the risk-free rate.
E. of each security must equal the slope of the security market line.
Answer:
Over the period of 1926-2011, which one of the following investment classes had the
highest volatility of returns?
A. Large-company stocks
B. U.S. Treasury bills
C. Small-company stocks
D. Long-term corporate bonds
E. Long-term government bonds
Answer:
The Carpentry Shop has sales of $398,600, costs of $254,800, depreciation expense of
$26,400, interest expense of $1,600, and a tax rate of 34 percent. What is the net
income for this firm?
A. $61,930
B. $66,211
C. $67,516
D. $76,428
E. $83,219
Answer:
Laurie’s Ice Rink keeps an extra $1,500 in its checking account simply in case an
emergency arises. Which type of motive for holding cash does this represent?
A. Speculative
B. Float requirement
C. Transaction
D. Precautionary
E. Availability
Answer: