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The annual interest paid by a bond divided by the bond's face value is called the:
A. coupon.
B. face value.
C. maturity.
D. yield to maturity.
E. coupon rate.
Answer:
A flow of unending and equal payments that occur at regular intervals of time is called
a(n):
A. annuity due.
B. indemnity.
C. perpetuity.
D. amortized cash flow stream.
E. amortization table.
Answer:
How much are you willing to pay for one share of stock if the company just paid an
annual dividend of $1.03, the dividends increase by 3 percent annually, and you require
a rate of return of 15 percent?
A. $8.58
B. $9.49
C. $10.40
D. $8.84
E. $6.87
Answer:
The corporate treasurer oversees which one of these areas?
A. financial planning
B. cost accounting
C. tax reporting
D. information systems
E. financial accounting
Answer:
Firms would need to hold zero cash for transaction purposes if all outgoing cash
transactions could be:
A. greater than total cash inflows.
B. less than total cash inflows.
C. separated from all incoming transactions.
D. perfectly synchronized with cash inflows.
E. performed electronically.
Answer:
When a firm writes a check, there is an immediate decrease in the _____ balance, but
no immediate change in the _____ balance.
A. bank; collected
B. ledger; book
C. bank; ledger
D. book; bank
E. available; book
Answer:
Stu can purchase a one-bedroom house near his college today for $110,000, including
the cost of some minor repairs. He expects to be able to resell it in four years for
$150,000 if he just puts a little effort into cleaning up the property. At a discount rate of
6.5 percent, what is the expected net present value of this purchase opportunity?
A. $3,001.61
B. $2,487.43
C. $6,598.46
D. $7,208.18
E. $4,311.02
Answer:
The assets of Green Light Specials are currently worth $2,100. These assets are
expected to be worth either $1,800 or $2,300 one year from now. The company has a
pure discount bond outstanding with a $2,000 face value and a maturity date of one
year. The risk-free rate is 5 percent. What is the value of the equity in this firm?
A. $166.67
B. $231.43
C. $385.71
D. $405.00
E. $714.29
Answer:
Delta Company has a capital structure of 35 percent risky debt with a beta of .56 and 65
percent equity with a beta of 1.34. What is the firm beta?
A. 1.07
B. 1.02
C. 1.10
D. 1.31
E. 1.40
Answer:
Lyme Home has 5,000 bonds outstanding with a face value of $1,000 each and a
coupon rate of 7.65 percent. Interest is paid semiannually. What is the amount of the
annual interest tax shield if the tax rate is 35 percent?
A. $157,650
B. $160,125
C. $1,062,500
D. $1,750,000
E. $133,875
Answer:
Stock A has a variance of .1428 while Stock B's variance is .0910. The covariance of
the returns for these two stocks is -.0206. What is the correlation coefficient?
A. -.1505
B. -.1146
C. -.1480
D. ".1643
E. ".1807
Answer:
A portfolio of small-company common stocks is best described as the stocks of the
firms which:
A. represent the smallest twenty percent of the companies listed on the NYSE.
B. have gone public within the past five years.
C. are too small to be listed on the NYSE.
D. are included in the Samp;P 500 index.
E. trade publicly for $5 a share or less.
Answer:
A stakeholder is any person or entity:
A. owning shares of stock of a corporation.
B. owning bonds or other long-term debt issued by a corporation.
C. that initially started a firm and currently has management control over that firm.
D. to whom the firm currently owes money.
E. other than a stockholder or creditor who potentially has a financial interest in the
firm.
Answer:
Lemoyne mailed an invoice today in the amount of $1,268 with terms of 2/7 net 30.
What is the cost of credit to the customer if they pay on the last day of the credit
period? Assume a 365-day year.
A. 41.02%
B. 39.62%
C. 37.80%
D. 37.56%
E. 39.40%
Answer:
If a project has both expansion and abandonment options, then the:
A. shorter the available life of the project the less valuable the project is.
B. longer the available life of the project the less valuable the project is.
C. options will offset each other and therefore add no value to the project.
D. project life becomes irrelevant.
E. project should always be accepted.
Answer:
Weisbro and Sons purchases its inventory one quarter prior to the quarter of sale. The
purchase price is 60 percent of the sales price. The accounts payable period is 45 days.
The accounts payable balance at the beginning of Quarter 1 is $39,500. The expected
sales are: Quarter 1 = $32,000; Quarter 2 = $34,500; Quarter 3 = $40,600; Quarter 4 =
$50,200. What is the amount of the expected disbursements for Quarter 2? Assume a
360-day year.
A. $19,280
B. $20,470
C. $22,530
D. $25,220
E. $19,950
Answer:
A project is expected to produce cash flows of $48,000, $39,000, and $15,000 over the
next three years, respectively. After three years, the project will be worthless. What is
the present value of this project if the applicable discount rate is 15.25 percent?
A. $89,201.76
B. $80,809.09
C. $73,457.96
D. $97,808.17
E. $93,132.48
Answer:
The observed empirical fact that stocks attract particular investors based on the firm's
dividend policy and the resulting tax impact on investors is called the:
A. information content effect.
B. clientele effect.
C. efficient markets hypothesis.
D. MM Proposition I.
E. MM Proposition II.
Answer:
The effect on an option's value of a small change in the value of the underlying asset is
called the option:
A. theta.
B. vega.
C. rho.
D. delta.
E. gamma.
Answer:
You are considering a new project. The project has projected depreciation of $720,
fixed costs of $6,000, and total sales of $11,760 at a sales quantity of 300 units. The
variable cost per unit is $17.40. What is the accounting break-even level of production?
A. 308.26 units
B. 300.64 units
C. 291.25 units
D. 297.69 units
E. 311.60 units
Answer:
Allison's wants to raise $12.4 million to expand its business. To accomplish this, it
plans to sell 25-year, $1,000 face value, zero-coupon bonds. The bonds will be priced to
yield 6.5 percent, with semiannual compounding. What is the minimum number of
bonds Allison's must sell to raise the $12.4 million it needs?
A. 59,864
B. 52,667
C. 61,366
D. 60,107
E. 60,435
Answer:
Martha's recently paid an annual dividend of $3.60 on its common stock. This dividend
increases by 2.5 percent per year. What is the market rate of return if the stock is selling
for $32.65 a share?
A. 12.57%
B. 13.45%
C. 15.55%
D. 16.05%
E. 13.80%
Answer:
Over the period of 1926 to 2014, the average rate of inflation was _____ percent.
A. 2.0
B. 2.7
C. 3.0
D. 3.8
E. 4.3
Answer:
Principal, Inc. is acquiring Secondary Companies for $38,000 in cash. Principal has
4,500 shares of stock outstanding at a market price of $31 a share. Secondary has 1,600
shares of stock outstanding at a market price of $22 a share. Neither firm has any debt.
The net present value of the acquisition is $2,400. What is the price per share of
Principal after the acquisition?
A. $31.00
B. $30.78
C. $31.53
D. $32.10
E. $31.94
Answer:
One year ago, you purchased a stock at a price of $33.48. The stock paid quarterly
dividends of $.60 per share. Today, the stock is worth $35.20 per share. What is your
holding period total return?
A. 10.00%
B. 6.93%
C. 12.31%
D. 9.80%
E. 6.59%
Answer:
The risk premium is computed by ______ the average return for the investment.
A. subtracting the inflation rate from
B. adding the inflation rate to
C. subtracting the average return on the U.S. Treasury bill from
D. adding the average return on the U.S. Treasury bill to
E. subtracting the average return on long-term government bonds from
Answer:
A project's operating cash flow will increase when the:
A. depreciation expense increases.
B. sales projections are lowered.
C. interest expense is lowered.
D. net working capital requirement increases.
E. earnings before interest and taxes decreases.
Answer:
NASDAQ:
A. has a single trading floor located in Chicago, Illinois.
B. has multiple trading floors.
C. is a designated market maker system.
D. has a multiple market maker system.
E. is closed to all electronic communications networks (ECNs).
Answer:
Roy's Welding projects cash flows of $13,500, $20,400, and $32,900 for Years 1 to 3
for a project with an initial cost of $45,000. What is the profitability index given an
assigned discount rate of 15 percent?
A. .92
B. .97
C. 1.03
D. 1.08
E. 1.14
Answer:
An attempt to gain control of a firm by soliciting a sufficient number of stockholder
votes to replace the current board of directors is called a:
A. tender offer.
B. proxy contest.
C. going-private transaction.
D. leveraged buyout.
E. consolidation.
Answer:
Juan is considering two independent projects. Project A costs $74,600 and cash flows of
$18,700, $46,300, and $12,200 for Years 1 to 3, respectively. Project B costs $70,000
and has cash flows of $10,600, $15,800, and $67,900 for Years 1 to 3, respectively. Juan
assigns a discount rate of 10 percent to Project A and 12 percent to Project B. Which
project or projects, if either, should he accept based on the profitability index rule?
A. accept both projects
B. accept Project A and reject Project B.
C. accept either A or B, but not both
D. reject both projects
E. accept Project B and reject Project A
Answer:
The law of one price is also known as:
A. relative purchasing power parity.
B. absolute purchasing power parity.
C. complete purchasing power parity.
D. interest rate parity.
E. the international Fisher Effect.
Answer:
If a debt is subordinated, it:
A. has a higher priority status than secured creditors.
B. is secondary to equity.
C. must give preference to the secured creditors in the event of default.
D. has been issued because the company is in default.
E. is treated as an equity security.
Answer:
A firm has 600 shares of stock and 100 warrants outstanding. The warrants are about to
expire, and all of them will be exercised. The market value of the firm's assets is
$25,000, and the market value of the debt is $8,000. Each warrant grants its owner the
right to buy 5 shares at $25 per share. What is the value of one warrant?
A. $17.87
B. $13.72
C. $14.25
D. $6.38
E. $9.09
Answer:
