Which one of the following statements is correct?
A. The APR is equal to the EAR for a loan that charges interest monthly.
B. The EAR is always greater than the APR.
C. The APR on a monthly loan is equal to (1 + monthly interest rate)12 – 1.
D. The APR is the best measure of the actual rate you are paying on a loan.
E. The EAR, rather than the APR, should be used to compare both investment and loan
options.
You want to have $45,000 in cash to buy a car 4 years from today. You expect to earn
4.5 percent, compounded annually, on your savings. How much do you need to deposit
today if this is the only money you save for this purpose?
A. $33,618.92
B. $34,511.68
C. $35,726.04
D. $37,735.26
E. $38,156.19
Which one of these statements is correct?
A. Since the early 1980s, it has become increasingly more difficult to do a stock
repurchase due to SEC regulations.
B. It is relatively easy to determine whether or not a firm has completed a planned stock
repurchase.
C. Fixed stock repurchases allow managers to repurchase shares only when they feel
those shares are undervalued.
D. A fixed stock repurchase plan could be a negative net present value investment for
the stock issuer.
E. Stock repurchases send the exact same signals to investors as do cash dividends.
Country Kitchens cost of equity is 15.3 percent and its aftertax cost of debt is 6.9
percent. What is the firms weighted average cost of capital if its debt-equity ratio is
0.58 and the tax rate is 30 percent?
A. 8.94 percent
B. 11.47 percent
C. 12.21 percent
D. 12.28 percent
E. 13.01 percent
The cost of capital for a project depends primarily on which one of the following?
A. Source of funds used for the project
B. Division within the firm that undertakes the project
C. Projects modified internal rate of return
D. How the project uses its funds
E. Projects fixed costs
Underwood Homes Sales has total assets of $589,900 and total debt of $318,000. What
is the equity multiplier?
A. 0.46
B. 0.54
C. 1.21
D. 1.85
E. 2.17
A firm uses the extended economic order quantity approach to inventory management.
Which one of the following inventory levels is considered to be the minimum inventory
level given this approach?
A. Zero inventory
B. Reorder point level
C. Safety stock level
D. 50 percent of the reorder quantity
E. Safety stock plus the reorder quantity
Later this week, you are traveling from the U.S. to Canada for a weeks 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
A.B. Securities assists issuers by pricing and selling new securities to the general
public. Which one of the following terms best fits the role that A. B. Securities is
playing?
A. Underwriter
B. Investment advisor
C. Specialist
D. Securities dealer
E. Venture capitalist
The common stock of Contemporary Interiors has a beta of 1.65 and a standard
deviation of 27.4 percent. The market rate of return is 13.2 percent and the risk-free rate
is 4.8 percent. What is the cost of equity for this firm?
A. 18.66 percent
B. 18.76 percent
C. 21.08 percent
D. 24.40 percent
E. 26.05 percent
Tuesday, December 1, is the ex-dividend date for Alpha stock. Which one of the
following dates is the record date? Assume there are no banking holidays to consider.
A. Friday, November 27
B. Monday, November 30
C. Wednesday, December 2
D. Thursday, December 3
E. Friday, December 4
Chinese Importers wants to raise $58 million to expand its operations into South
America. The company will sell new shares of common stock using a general cash
offering. The underwriters charge a 7.8 percent spread, the administrative costs are
$411,000, and the offer price is $35 per share. How many shares of stock must be sold
if the firm is to raise the funds it desires?
A. 1,648,315 shares
B. 1,810,071 shares
C. 1,911,502 shares
D. 1,989,415 shares
E. 2,051,515 shares
Today, you are borrowing $13,800 to purchase a car. What will be your monthly
payment amount if the loan is for four years at 7.5 percent interest?
A. $298.40
B. $321.150
C. $333.67
D. $380.24
E. $400.10
Which one of the following types of bonds should an investor purchase if he or she is
primarily concerned about ensuring that bond ownership will increase his or her
purchasing power?
A. OTC
B. Death
C. CAT
D. PETS
E. TIPS
Which one of the following best describes a private placement?
A. Interim financing for a new, high-risk entity
B. Long-term loan by a limited number of investors
C. Two-year direct business loan
D. Three-year loan to a firm by its original founder
E. New equity issue offered to current shareholders
McClary Tires just decided to save money each year for the next four years to help fund
a new building. If it earns 6.5 percent on its savings, how much will the firm have saved
at the end of year 4?
A. $107,525.40
B. $108,392.69
C. $111,860.57
D. $113,200.39
E. $119,426.41