The primary market is the market for original, first-time issues of securities.
A portfolio is a collection of securities.
An annuity is a series of equal payments separated by equal time intervals.
The future value factor for an annuity of n periods can be obtained by adding the future
value factors for amounts for 1 through n periods.
Due to the mechanics of printing and issuing bonds, bond coupon rates do not always
equal current market interest rates.
Eurodollars are American dollars on deposit in European banks. Similarly, American
dollars on deposit in Asian banks are called Asiadollars.
The projected cash flows for two mutually exclusive projects are as follows:
If the firm’s cost of capital is 10% and the equivalent annual annuity method is used to
eliminate the disparity between the projects’ lives, which project should be undertaken?
A.A
B.B
C.Either, because the difference in lives makes a comparison meaningless.
D.A, but the EAAs are so close that either is probably ok.
A firm’s total investment in accounts receivable at any point in time is determined by:
A.the amount of credit sales.
B.the credit period.
C.the firm’s credit policy.
D.All of the above
What type of mergers is generally the subject of antitrust laws?
A.Conglomerate mergers only
B.Vertical mergers only
C.Horizontal mergers only
D.Vertical and horizontal mergers
Assume a recent quote showed a spot price for Canadian dollars of $.7376 and a six
month forward rate of $.7373. The implication is that products made in Canada and sold
in the U.S. will cost:
A.more in six months.
B.less in six months.
C.the same in six months.
D.either b or c.
You have invested in stocks W and X. From the following information, determine the
beta for your portfolio.
A.0.85
B.0.95
C.1.00
D.1.10
E.2.20
Smith Inc.€s cost of capital is 11% and the risk-free rate is 5%. The company plans to
invest in a new project. The cash flow projections ($000) for the project are given
below. Calculate the certainty equivalent NPV ($000).
A.($51.22)
B.($54.38)
C.$51.22
D.$22.41
Business planning that focuses on short-term financial performance, including cash
requirements is called:
A.strategic planning.
B.operational planning.
C.budgeting.
D.forecasting.
E.this level of detail is included in all of the business planning levels.
Sudberry Systems Corp. is launching a new product that analysts expect will propel its
growth to 18% for about a year. After that everyone expects the firm to return to a more
normal 5% growth rate indefinitely. Sudberry recently paid an annual dividend of
$3.50. Similar stocks are currently returning 9%. What is the most an investor should be
willing to pay for a share of Sudberry?
A.$ 108.50
B.$145.45
C.$137.24
D.$103.33
Financial intermediaries include:
A.stock brokers.
B.banks.
C.securities dealers.
D.All of the above
Which of the following statements is most correct?
A.All world currencies are convertible
B.In order for a currency to be convertible, the country’s government must allow it to be
traded on foreign exchange markets.
C.In order for a currency to be convertible, it must be exchangeable for U.S. dollars.
D.Both b. and c. are correct.
E.All of the above are correct.
A firm is planning for next year and has developed the following information
What receivables balance should the firm plan for next year if management intends to
reduce the ACP by ten days? (Calculate using ending balances and a 360-day year):
A.$1.15M
B.$0.80M
C.$0.92M
D.none of the above
A portfolio is characterized by the following:
a. Calculate the portfolio’s expected return.
b. Calculate the beta of the portfolio.
c. If the return on the market is 10% and the risk-free rate is 3%, what is the required
return on the portfolio?
What is the rate of return on a preferred stock that has a par value of $50, a market price
of $46.50, and a dividend of $4.10?
A.8.20%
B.11.34%
C.8.82%
D.12.20%
If a firm will use debt as well as equity funds next year, the ____ is the correct discount
rate to use in the capital budgeting models (NPV, etc.)
A.component cost of equity
B.weighted average cost of capital
C.historical cost of funds
D.All of the above are correct