1) To be a member of the NYSE, you must:
A.be a primary dealer
B.buy a seat
C.own a trading license
D.be registered as a floor trader
E.be a DMM
2) Which one of the following is contained in the corporate bylaws?
A.Procedures for electing corporate directors
B.State of incorporation
C.Number of authorized shares
D.Intended life of the corporation
E.Business purpose of the corporation
3) A stock has a beta of 1.56 and an expected return of 17.3 percent. A risk-free asset
currently earns 5.1 percent. If a portfolio of the two assets has a beta of 1.06, what are
the portfolio weights?
A.Stock weight = 0.28; risk-free weight = 0.72
B.Stock weight = 0.032; risk-free weight = 0.68
C.Stock weight = 0.44; risk-free weight = 0.56
D.Stock weight = 0.68; risk-free weight = 0.32
E.Stock weight = 0.72; risk-free weight = 0.28
4) 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
5) Stock J has a beta of 1.47 and an expected return of 15.8 percent. Stock K has a beta
of 1.05 and an expected return of 11.9 percent. What is the risk-free rate if these
securities both plot on the security market line?
A.2.15 percent
B.3.34 percent
C.3.88 percent
D.4.41 percent
E.4.68 percent
6) When a bond’s yield to maturity is less than the bond’s coupon rate, the bond:
A.had to be recently issued
B.is selling at a premium
C.has reached its maturity date
D.is priced at par
E.is selling at a discount
7) Taylor’s Market received five checks today and went to the bank to deposit all of
them. Unfortunately, the bank was closed for the day due to a robbery. How does the
bank closure affect the firm’s float assuming these five checks are the only outstanding
bank items?
A.Collection float increased
B.Collection float decreased
C.Disbursement float increased
D.Disbursement float decreased
E.Net float remained unchanged
8) Currently, you own a portfolio comprised of the following three securities. How
much of the riskiest security should you sell and replace with risk-free securities if you
want your portfolio beta to equal 90 percent of the market beta?
A.$7,023.15
B.$7,811.29
C.$8,666.67
D.$9,613.64
E.$10,318.50
9) You are considering the following two mutually exclusive projects. What is the
crossover point?
A.10.76
B.13.72
C.15.89
D.18.79
E.22.56
10) Joshua’s Antiques has a total asset turnover rate of 1.2, an equity multiplier of 1.4, a
profit margin of 5 percent, a retention ratio of 0.8, and total assets of $120,000. What is
the sustainable growth rate?
A.6.98 percent
B.7.20 percent
C.7.33 percent
D.7.54 percent
E.7.91 percent
11) Kristina started setting aside funds three years ago to save for a down payment on a
house. She has saved $900 each quarter and earned an average rate of return of 4.8
percent. How much money does she currently have saved for her down payment?
A.$11,542.10
B.$12,388.19
C.$15,209.80
D.$15,366.67
E.$16,023.13
12) Lockboxes should be located:
A.in every town where a firm has a customer
B.based on where a firm’s primary customers are located
C.only in major urban areas since those are the key financial areas of the country
D.close to a firm’s home office
E.only in cities where the firm has regional offices
13) Which one of the following statements related to the income statement is correct?
A.Depreciation has no effect on taxes
B.Interest paid is a noncash item
C.Taxable income must be a positive value
D.Net income is distributed either to dividends or retained earnings
E.Taxable income plus interest and depreciation equals earnings before interest and
taxes
14) The Pier Import Store has cash of $34,600 and accounts receivable of $54,200. The
inventory cost $92,300 and can be sold today for $146,900. The fixed assets were
purchased at a cost of $234,500 of which $107,900 has been depreciated. The fixed
assets can be sold today for $199,000. What is the total book value of the firm’s assets?
A.$127,800
B.$307,700
C.$346,800
D.$382,300
E.$415,600
15) You are considering the following two mutually exclusive projects. The required
return on each project is 14 percent. Which project should you accept and what is the
best reason for that decision?
A.Project A, because it pays back faster
B.Project A, because it has the higher internal rate of return
C.Project B, because it has the higher internal rate of return
D.Project A, because it has the higher net present value
E.Project B, because it has the higher net present value
16) Lewis Materials recently offered 15,000 shares of stock but received payment for
only 12,500 shares since that was all the shares the underwriters could sell. What type
of underwriting was this?
A.Syndicated
B.Firm commitment
C.Private placement
D.Best efforts
E.Dutch auction
17) You just borrowed $3,000 from your bank and agreed to repay the interest on an
annual basis and the principal at the end of three years. What type of loan did you
obtain?
A.Interest-only
B.Amortized
C.Perpetual
D.Pure discount
E.Lump sum
18) The price at which a dealer will purchase a bond is called the _____ price.
A.asked
B.face
C.call
D.put
E.bid
19) The Treasury yield curve plots the yields on Treasury notes and bonds relative to
the ____ of those securities.
A.face value
B.market price
C.maturity
D.coupon rate
E.issue date
20) A firm has a return on equity of 12.4 percent according to the dividend growth
model and a return of 18.7 percent according to the capital asset pricing model. The
market rate of return is 13.5 percent. What rate should the firm use as the cost of equity
when computing the firm’s weighted average cost of capital (WACC)?
A.12.4 percent because it is lower than 18.7 percent
B.18.7 percent because it is higher than 12.4 percent
C.The arithmetic average of 12.4 percent and 18.7 percent
D.The arithmetic average of 12.4 percent, 13.5 percent, and 18.7 percent
E.13.5 percent
21) Which one of the following states that a firm’s cost of equity capital is a positive
linear function of the firm’s capital structure?
A.Static theory of capital structure
B.M&M Proposition I
C.M&M Proposition II
D.Homemade leverage theory
E.WACC
22) Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.
A.annual
B.semiannual
C.quarterly
D.monthly
E.daily
23) Which one of the following correctly matches a country with its currency?
A.Canadapound
B.Chinayuan
C.Mexicoreal
D.Japanlira
E.United Kingdomeuro
24) Today, Sweet Snacks is investing $491,000 in a new oven. As a result, the company
expects its cash flows to increase by $64,000 a year for the next two years and by
$98,000 a year for the following three years. How long must the firm wait until it
recovers all of its initial investment?
A.3.97 years
B.4.18 years
C.4.46 years
D.4.70 years
E.The project never pays back
25) An increase in which one of the following will increase operating cash flow for a
profitable, tax-paying firm?
A.Fixed expenses
B.Interest paid
C.Net capital spending
D.Inventory
E.Depreciation
26) Isabella is considering three mutually exclusive options for the additional space she
just added to her specialty women’s store. The cost of the expansion was $127,000. She
can use this additional space to add a fabric and quilting section, add an exclusive gifts
department, or expand into imported decorator items for the home. She estimates the
present value of these options at $114,000 for fabric and quilting, $163,000 for
exclusive gifts, and $138,000 for decorator items. Which option(s), if any, should
Isabella accept?
A.None of these options
B.Fabric and quilting only
C.Exclusive gifts only
D.Exclusive gifts and decorator items only
E.All three options
27) Steve is considering investing $3,600 a year for 40 years. How much will this
investment be worth at the end of the 40 years if he earns an average annual rate of
return of 11.6 percent? Assume Steve invests his first payment of the end of this year.
A.$1,887,411.26
B.$1,919,200.08
C.$2,103,018.90
D.$2,311,416.67
E.$2,471,685.70
28) Noah’s Landing stock is expected to produce the following returns given the various
states of the economy. What is the expected return on this stock?
A.4.05 percent
B.4.23 percent
C.4.51 percent
D.5.47 percent
E.20.26 percent
29) Which one of the following terms refers to a bond’s rate of return that is required by
the marketplace?
A.Coupon rate
B.Yield to maturity
C.Dirty yield
D.Call yield
E.Discount rate