A 7 percent bond has a yield to maturity of 6.5 percent. The bond matures in seven
years, has a face value of $1,000, and pays semiannual interest payments. What is the
amount of each coupon payment?
A. $30.00
B. $35.00
C. $60.00
D. $65.00
E. $70.00
Lakeside Rides is adding a new roller coaster to its amusement park. The firm expects
this addition to increase its overall ticket sales and increase attendance at its park. In
particular, the firm expects to sell more tickets for its current roller coaster and
experience extremely high demand for its new coaster. Sales for its boat ride are
expected to decline but food and beverage sales are expected to increase significantly.
Which of the following are considered side effects associated with the new roller
coaster?I. Ticket sales for the new roller coasterII. Change in ticket sales for the
existing coasterIII. Change in ticket sales for the boat rideIV. Change in food and
beverage sales
A. I only
B. III only
C. II and III only
D. I, II, and III only
E. II, III, and IV only
Which one of the following terms applies to the costs incurred by a firm that is trying to
avoid filing for bankruptcy?
A. Indirect bankruptcy costs
B. Direct bankruptcy costs
C. Static theory cost
D. Optimal capital structure cost
E. Reorganization costs
Which of the following are inversely related to increases in a firm’s current assets?I.
Reorder costsII. Shortage costsIII. Restocking costsIV. Carrying costs
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only
You own a portfolio that has $1,900 invested in Stock A and $2,700 invested in Stock
B. If the expected returns on these stocks are 9 percent and 15 percent, respectively,
what is the expected return on the portfolio?
A. 10.57 percent
B. 11.14 percent
C. 11.96 percent
D. 12.52 percent
E. 13.07 percent
A bond for which no specific property has been pledged as security is classified as a:
A. bearer bond.
B. trust deed bond.
C. registered bond.
D. debenture.
E. sinking fund bond.
A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must:
A. have a one-year term.
B. have a zero percent interest rate.
C. charge interest annually.
D. must be an interest-only loan.
E. require the accrued interest be paid in full with each monthly payment.
You are comparing two possible capital structures for a firm. The first option is an
all-equity firm. The second option involves the use of $3.8 million of debt. The
break-even point between these two financing options occurs when the earnings before
interest and taxes (EBIT) are $428,000. Given this, you know that leverage is beneficial
to the firm:
A. whenever EBIT is less than $428,000.
B. only when EBIT is $428,000.
C. whenever EBIT exceeds $428,000.
D. only if the debt is decreased by $428,000.
E. only if the debt is increased by $428,000.
Travis is buying a car and will finance it with a loan that requires monthly payments of
$265 for the next four years. His car payments can be described by which one of the
following terms?
A. Perpetuity
B. Annuity
C. Consol
D. Lump sum
E. Factor
The more actively traded large companies that are listed on NASDAQ are traded in
which one of the NASDAQ markets?
A. National
B. Capital
C. Regional
D. Global Select
E. Global
Your firm has an average collection period of 52 days. Current practice is to factor all
receivables immediately at a 2.2 percent discount. What is the effective cost of
borrowing in this case? Assume that default is extremely unlikely.
A. 16.12 percent
B. 16.18 percent
C. 16.90 percent
D. 17.53 percent
E. 17.59 percent
The Texas Instruments Company has 9 percent coupon bonds on the market with seven
years left to maturity. The bonds make annual payments. If the bond currently sells for
$874.60, what is its YTM?
A. 9.82 percent
B. 9.90 percent
C. 11.10 percent
D. 11.72 percent
E. 11.78 percent
Which of the following terms can be used to describe unsystematic risk?I.
Asset-specific riskII. Diversifiable riskIII. Market riskIV. Unique risk
A. I and IV only
B. II and III only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV
For which one of the following instruments does a bank guarantee payment by the
buyer?
A. Money market preferred stock
B. Commercial paper
C. Banker’s acceptance
D. Invoice
E. Time draft
Western Feed Mills has projected the following quarterly sales amounts for the coming
year.
Accounts receivable at the beginning of the year are $325. Western Feed Mills has a
60-day collection period. How much cash will the firm collect in quarter 1 and quarter
2, respectively?
A. $325; $498
B. $498; $347
C. $498; $530
D. $672; $367
E. $672; $540
Which one of the following terms is defined as the total tax paid divided by the total
taxable income?
A. Average tax rate
B. Variable tax rate
C. Marginal tax rate
D. Absolute tax rate
E. Contingent tax rate
You have compiled the following information on your investments. What rate of return
should you expect to earn on this portfolio?
A. 9.54 percent
B. 9.83 percent
C. 10.01 percent
D. 10.27 percent
E. 10.58 percent
Western Steer purchased some three-year MACRS property three years ago. What is the
current book value of this equipment if the original cost was $58,000? The MACRS
allowance percentages are as follows, commencing with year 1: 33.33, 44.45, 14.81,
and 7.41 percent.
A. $0
B. $1,122
C. $4,298
D. $7,863
E. $8,886
A firm has an average collection period of 35 days and factors all of its receivables
immediately at a 0.95 percent discount. Assume all accounts are collected in full. What
is the firm’s effective cost of borrowing?
A. 9.98 percent
B. 10.13 percent
C. 10.24 percent
D. 10.38 percent
E. 10.47 percent