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1) a fund that attempts to mimic the s&p 500
a.an efficient portfolio
b.a passive portfolio
c.an active portfolio
d.an index portfolio
2) choc-lattes corp. earned $5.00 per share in 2006, and paid a dividend of $2.00 per
share. if it earns $5.50 in 2007 and maintains its $2.00 dividend, its payout ratio will be
a.60%
b.40%
c.64%
d.36%
3) in order to be eligible for s status, a firm must
a.have 100 or fewer shareholders
b.be a financial intermediary
c.have been incorporated for more than 5 years
d.not have more than one line of business
4) the payback method:
a.fails to explicitly consider the time value of money
b.is the amount of time it takes for a project to recoup its profits
c.is the best method for evaluating complex projects
d.is never used by businesses today
5) a firm currently has $2,000,000 in assets and $1,000,000 in accounts payable. if the
firm expects sales to increase by 10% from last year to next year, then what is the
estimated external funds required if the firm pays all of its net income to shareholders?
a.$100,000
b.$1,000,000
c.$2,000,000
d.none of the above
6) modern risk management:
a.focuses primarily on easily-insured losses such as those from fires or theft
b.deals with the use of derivatives to hedge various risks
c.has evolved to cover more sophisticated risk reduction, including that which may
arise from changes in interest rates and the prices of commodities and currencies
d.both (b) and (c)
e.none of the above
7) a bond is trading on the secondary market and will mature in 10 years. the bond has a
face value of $1,000 that will be paid at maturity. further, the bond pays an annual
coupon at 9% of face value. what should the trading price be for the bond if investors
seek a 12% on their investment?
a.$1,192.53
b.$830.49
c.$827.95
d.$508.52
8) bavarian brewhouse is planning on going public. under the underwriting agreement
the underwriting discount is $1.25 per share. if the offering price of the stock is set at
$12.50 per share, what is the percentage underwriting discount?
a.8%
b.9%
c.10%
d.11%
9) the first step in the risk-based approach to estimating a securitys expected return is
to:
a.define what is meant by risk and to measure it
b.quantify how much return we should expect on an asset with a given amount of risk
c.estimate the risk-free rate
d.define what is meant by return
10) modern risk management:
a.focuses primarily on easily-insured losses such as those from fires or theft
b.deals with the use of derivatives to hedge various risks
c.has evolved to cover more sophisticated risk reduction, including that which may
arise from changes in interest rates and the prices of commodities and currencies
d.both (b) and (c)
e.none of the above
11) narrbegin: cash disbursements
bavarian brews schedule of projected cash disbursement
the companys purchases are 75% of its sales. of those purchases 15% are paid in cash,
50% are paid in the following month and the remainder in the month after that. the
companys wages and salaries equal 15% of sales each month plus $50. taxes of $125
are due in april. the company is going to purchase new machinery worth $1000 in
march and pay 50% right away and the rest in april. in addition, the company will pay a
$175 dividend in february.
narrend
what are bavarian brews cash disbursements in march?
a.$1,128.25
b.$510.75
c.$750.75
d.$1,260.75
12) meri beth rank believes that stock of opp & company is going to be extremely
volatile over the next month. meri beth expects the stock to move by 50% but she is not
sure whether the stock of opp & company will rise or fall. a possible strategy that meri
beth could employ to profit from her expectation is
a.a long straddle
b.a short straddle
c.a short call
d.a short put
13) roxy plans to buy four-month treasury bills in eight months. currently the price on
twelve-month treasury bills is $962,456 per million. the risk-free rate is 5.2%. what is
the fair forward price per $1 million?
a.$983,193
b.$995,538
c.$1,012,504
d.$1,012,504
14) astro investors is interested in purchasing the bonds of the jetson company. jetsons
bonds are currently priced at $1,100.00 and have 14.5 years to maturity. if the bonds
have a 6% coupon rate what is the yield-to-maturity of these semiannual coupon paying
bonds?
a.5.00%
b.5.02%
c.2.51%
d.2.50%
15) you were just hired as the ceo of a company. your primary objective should be
a.to maximize the companys earnings
b.to maximize profits
c.to maximize the companys price of common stock
d.to eliminate the companys competitors
16) a firm's investment opportunity set is a function of a firm's:
a.size
b.industry
c.capital intensity of the firm's production process
d.the free cash flow generated
e.all of the above
17) the ultimate owner(s) of an ongoing corporation are
a.the federal government
b.the debt holders
c.the equity holders
d.the executive staff of the corporation
18) active managers:
a.generate lower expenses for their shareholders than passive managers
b.trade more frequently than passive managers
c.always use trading rules to decide when to buy and sell stocks
d.all of the above
