Which one of the following terms applies to a junk bond that was originally issued with
a bond rating of AA?
A. Debenture
B. Covenant
C. Fallen angel
D. Sinking
E. Triple B
Answer:
Which one of the following is an equity account?
A. Paid-in surplus
B. Bonds payable
C. Patent
D. Depreciation
E. Net fixed assets
Answer:
Consider the following two mutually exclusive projects:
Whichever project you choose, if any, you require a 14 percent return on your
investment. If you apply the payback criterion, you will choose Project ______; if you
apply the NPV criterion, you will choose Project ______; if you apply the IRR
criterion, you will choose Project _____; if you choose the profitability index criterion,
you will choose Project ___. Based on your first four answers, which project will you
finally choose?
A. A; B; A; A; B
B. A; A; B; B; A
C. A; A; B; B; B
D. B; A; B; A; A
E. B; A; B; B; A
Answer:
Janice plans to save $75 a month, starting today, for 20 years. Kate plans to save $80 a
month for 20 years, starting one month from today. Both Janice and Kate expect to earn
an average return of 5.5 percent on their savings. At the end of the 20 years, Kate will
have approximately _____ more than Janice.
A. $2,028.39
B. $2,066.67
C. $2,091.50
D. $2,178.14
E. $2,189.12
Answer:
An upward-sloping term structure of interest rates indicates:
A. the real rate of return is lower for short-term bonds than for long-term bonds.
B. there is an indirect relationship between real interest rates and time to maturity.
C. there is an indirect relationship between nominal interest rates and time to maturity.
D. the nominal rate is declining as the real rate rises as the time to maturity increases.
E. the nominal rate is increasing even though the real rate is constant as the time to
maturity increases.
Answer:
Suppose the Swiss franc exchange rate is SF 1.1582 = $1, and the euro exchange rate is
€0.7538 = $1. What is the cross-rate in terms of Swiss francs per euro?
A. SF 1.5074 = €1
B. SF 1.5098 = €1
C. SF 1.5132 = €1
D. SF 1.5246 = €1
E. SF 1.5365 = €1
Answer:
Room and Board has determined that $36,000 is the break-even level of earnings before
interest and taxes for the two capital structures it is considering. The one structure
consists of all equity with 14,000 shares of stock. The second structure consists of
10,000 shares of stock and $80,000 of debt. What is the interest rate on the debt?
A. 7.72 percent
B. 8.19 percent
C. 9.97 percent
D. 11.43 percent
E. 12.86 percent
Answer:
A $100,000 Treasury bond has a bid price quote of 115.20 and an asked quote of
115.23. In dollars, what is the value of the bid-ask spread on this bond?
A. $0.93
B. $9.36
C. $93.75
D. $937.50
E. $9,375.00
Answer:
Which one of the following is a speculative motive for holding cash?
A. Buying extra inventory because a key supplier offered a special one-time discount
B. Paying a $100 bonus to all employees at year-end
C. Paying the annual insurance premium on the firm’s assets
D. Needing to purchase a new delivery truck because the old one was totally destroyed
in an accident
E. Contributing $1,000 to help fund medical care for an uninsured neighbor
Answer:
New Steel Products has total assets of $991,000, a total asset turnover rate of 1.1, a
debt-equity ratio of 0.6, and a return on equity of 8.7 percent. What is the firm’s net
income?
A. $53,885.63
B. $58,303.33
C. $64,624.14
D. $70,548.09
E. $77,236.67
Answer:
Consider a three-year project with the following information: initial fixed asset
investment = $770,000; straight-line depreciation to zero over the three-year life; zero
salvage value; price = $34.99; variable costs = $23.16; fixed costs = $245,000; quantity
sold = 94,500 units; tax rate = 40 percent. How sensitive is OCF to an increase of one
unit in the quantity sold?
A. $7.10
B. $7.73
C. $8.67
D. $9.97
E. $11.83
Answer:
In a general partnership, each partner is personally liable for:
A. the partnership debts that he or she created.
B. his or her proportionate share of all partnership debts regardless of which partner
incurred that debt.
C. the total debts of the partnership, even if he or she was unaware of those debts.
D. the debts of the partnership up to the amount he or she invested in the firm.
E. all personal and partnership debts incurred by any partner, even if he or she was
unaware of those debts.
Answer:
The one-year forward rate for the British pound is 0.6781 = $1. The spot rate is 0.6789
= $1. The interest rate on a risk-free asset in the UK is 4.6 percent. If interest rate parity
exists, what is the one-year risk-free rate in the U.S.?
A. 4.68 percent
B. 4.72 percent
C. 4.77 percent
D. 4.83 percent
E. 4.87 percent
Answer:
Reynolds Metals common stock is selling for $25 a share and has a dividend yield of
3.1 percent. What is the dividend amount?
A. $0.31
B. $0.78
C. $3.49
D. $4.25
E. $7.80
Answer:
Spiral Staircase is offering preferred stock which is commonly referred to as 10-10
stock. This stock will pay an annual dividend of $10 a share starting 10 years from now.
What is this stock worth to you today if you desire a 15 percent rate of return?
A. $16.70
B. $18.95
C. $19.63
D. $20.52
E. $20.94
Answer:
Laura Lynn owns 20,700 shares of Global Exporters. Her shares have a total market
value of $787,270. In total, the firm has 65,000 shares outstanding. Each share is
entitled to one vote under the straight voting policy of the firm. The next election is in
four months at which time two directors are up for election. How much more must
Laura Lynn invest in this firm to guarantee that she is elected to the board?
A. $0
B. $396,554
C. $448,820
D. $498,406
E. $547,478
Answer:
Kessler, Inc. has accounts receivable of $31,600, total assets of $311,500, cost of goods
sold of $208,400, and a capital intensity ratio of 1.08. What is the accounts receivable
turnover rate?
A. 8.99
B. 9.13
C. 9.42
D. 9.61
E. 9.72
Answer:
LaDoris’ Boutique has 4,500 shares of stock outstanding at a price per share of $20. The
firm has decided to repurchase 600 of those shares in the open market. What will the
price per share be after the share repurchase is completed? Ignore taxes and market
imperfections.
A. $17.80
B. $18.40
C. $18.80
D. $20.00
E. $20.20
Answer:
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
Answer:
Currently, you can exchange €100 for $133. The inflation rate in Euroland is expected
to be 2.5 percent. In one year, it is expected that €100 can be exchanged for $136.
Assume relative purchasing power parity exists. What is the expected inflation rate in
the U.S.?
A. 3.84 percent
B. 4.26 percent
C. 4.71 percent
D. 5.21 percent
E. 5.68 percent
Answer: