If the variance for Stock A is greater than the variance for Stock B, then the coefficient
of variation for Stock A:
a. is greater than the coefficient of variation for Stock B
b. is less than the coefficient of variation for Stock B
c. is the same as the coefficient of variation for stock b
d. cannot be determined by this information
Two risky assets can be combined to lower the overall risk of a portfolio. This principle
is commonly referred to as
a. blending
b. asset allocation
c. diversification
d. portfolio segmentation
e. none of the above
The basic future and present value equations contain four variables. Which one of the
following is not included?
a. present value (PV)
b. future value (FV)
c. interest rate (r)
d. inflation rate (I)
e. number of periods (n)
Which of the following is not potentially used in the weighted average cost of capital
equation?
a. cost of retained earnings
b. weight of debt
c. average corporate income tax rate
d. marginal tax rate
Assume the probability of a pessimistic, most likely and optimistic state of nature is .25,
.45 and .30, and the returns associated with those states of nature are 10%, 12%, and
16% for asset X. Based on this information, the expected return and standard deviation
of return are:
a. 12.0% and 4.0%
b. 12.7% and 2.3%
c. 12.7% and 4.0%
d. 12.0% and 2.3%
e. none of the above
The market portfolio would have a beta of:
a. 0
b. 1
c. -1
d. 0.8
A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total
variable costs of $1,275,000. With this data, thee firm’s operating breakeven point
during the year, in dollars, is
a. $150,000
b. $176,471
c. $1,000,000
d. $1,425,000
Which of the following statements is false?
a. The prices quoted to the individual buyer of foreign exchange are always in favor of
the seller.
b. An indirect quote is in terms of units of foreign currency per unit of the home
country’s currency.
c. Economic risk reflects the uncertainty associated with national government action
that might affect asset values.
d. All the above statements are false.
Which of the following phrases make the statement false? As a firm increases its
operating leverage for a given quantity of output, this:
a. decreases its financial leverage
b. changes its operating cost structure
c. increases its business risk
d. increases the variability on earnings per share
Inflation caused by an increase in the money supply is called:
a. demand-pull inflation
b. cost-push inflation
c. administrative inflation
d. a combination of administrative and speculative inflation
The government entity responsible for fiscal policy is:
a. the U.S. Treasury
b. the Federal Reserve
c. the Congress
d. the Commerce Department
During the past several years:
a. the discount rate has been lower than the prime rate
b. the discount rate has been higher than the prime rate
c. the discount rate has been unrelated to the prime rate
d. none of the above
A decrease in the demand for loanable funds, holding supply constant, will cause
interest rates to:
a. increase
b. decrease
c. stay the same
d. not enough information to tell
Joseph has just accepted a job as a stockbroker. He estimates his gross pay each year for
the next three years is $35,000 in year 1, $21,000 in year 2, and $32,000 in year 3. The
present value of these cash flows, if they are discounted at 4%, is closest to
a. $79,452.30
b. $80,294.50
c. $81,517.10
d. $88,000
An analyst should be careful when conducting ratio analysis to ensure that
a. the overall performance of the firm is not judged on a single ratio.
b. the dates of the financial statements being compared are the same.
c. audited statements are being used.
d. the same accounting procedures were used.
e. all of the above
Cash disbursements may include all of the following EXCEPT
a. tax payments
b. rent payments
c. wage payments
d. fixed asset outlays
e. all of the above
What would be recorded in the common stock par value account on the balance sheet if
20,000 shares are issued at a par value of $2 and the market value is $5?
a. $20,000
b. $40,000
c. $30,000
d. $60,000
Using aggressive approach for financing a firm’s assets, long term financing would be
used only to finance fixed assets, while short term financing would be used to finance
current assets including seasonal fluctuations.
The accounts payable period is the time between a firm pays its suppliers for inventory
and collecting cash from inventories.
The most desirable form of business organization from a liquidity standpoint is a
limited liability company.
The Federal Reserve System was not able to regulate money and credit until after World
War II.
The risk-free rate of interest is found by combining the real rate of interest and the rate
paid on U.S. Treasury debt.
Trade credit may be considered the least formal of all forms of financing.
While the financial press chooses to highlight examples of unethical behavior, most
individuals exhibit sound ethical behavior in their personal and business dealings and
practices.
The degree of combined leverage is measured by adding the degree of operating
leverage and degree of financial leverage.
Firm commitment flotation costs are typically lower than those of best efforts.
Interest rates in the United States are only influenced by domestic factors.