The preferred stock of Dolphin Pools pays an annual dividend of $6.25 a share and sells
for $42 a share. The tax rate is 35 percent. What is the firm’s cost of preferred stock?
A. 9.67 percent
B. 14.88 percent
C. 15.07 percent
D. 15.59 percent
E. 16.47 percent
Answer:
A bond trader just purchased and resold a bond. The amount of profit earned by the
trader from this purchase and resale is referred to as the:
A. market yield.
B. yield-to-call.
C. bid-ask spread.
D. current yield.
E. bond premium.
Answer:
Baugh & Essary has net income of $149,200, sales of $936,800, a capital intensity ratio
of 0.74, and an equity multiplier of 1.5. What is the return on equity?
A. 6.67 percent
B. 15.93 percent
C. 32.25 percent
D. 42.21 percent
E. 44.09 percent
Answer:
Which one of the following dates is the date on which the board of directors votes to
pay a dividend?
A. Record date
B. Declaration date
C. Ex-dividend date
D. Payment date
E. Settlement date
Answer:
A corporate bond pays 6 percent interest. How much would a municipal bond have to
pay to be equivalent to this on an after-tax basis if you are in the 15 percent tax bracket?
A. 3.96 percent
B. 4.28 percent
C. 5.10 percent
D. 9.75 percent
E. 11.47 percent
Answer:
You are given the exchange rate between the U.S. dollar and the Canadian dollar. You
are also given the exchange rate between the U.S. dollar and the Mexican peso. What is
the name given to the Canadian dollar per Mexican peso exchange rate derived from the
information that was provided?
A. Swap rate
B. Depositary rate
C. Forward rate
D. London Interbank rate
E. Cross-rate
Answer:
The 7.5 percent preferred stock of Rock Bottom Floors is selling for $60 a share. What
is the firm’s cost of preferred stock if the tax rate is 35 percent and the par value per
share is $100?
A. 7.50 percent
B. 8.13 percent
C. 12.50 percent
D. 13.79 percent
E. 14.14 percent
Answer:
A bond has an 8 percent coupon rate, a face value of $1,000, semiannual payments, and
sells at par. The current yield is _____ percent and the effective annual yield is _____
percent.
A. 6.76; 6.87
B. 6.76; 6.96
C. 7.00; 7.00
D. 8.00; 8.16
E. 7.23; 7.23
Answer:
A bond has a make-whole call provision. Given this, you know that the:
A. bond will always sell at par.
B. call premium must equal the annual coupon payment.
C. call price is directly related to the market rate of interest.
D. call price is inversely related to the market rate of interest.
E. bond must be a zero coupon bond.
Answer:
The written agreement that contains the specific details related to a bond issue is called
the bond:
A. indenture.
B. debenture.
C. document.
D. registration statement.
E. issue paper.
Answer:
One year ago, you purchased a 5 percent coupon bond with a face value of $1,000 when
it was selling for 101.2 percent of par. Today, you sold this bond for 99.8 percent of par.
What is your total dollar return on this investment?
A. $36
B. $60
C. $64
D. $74
E. $82
Answer:
Which one of the following is the annuity present value formula?
A. C {{1 – [1/(1 + r)t]}/r}
B. C {1 – [1/(1 + r)t]} – r
C. C {1 – [r/(1 + r)t]}/r
D. C {{1 – [1/(1 r)t]} r}
E. C {1 – [r/(1 r)t]} r
Answer:
Which one of the following is included in net working capital?
A. Land
B. Accounts payable
C. Equipment
D. Depreciation
E. Dividend
Answer:
Orchard Farms has a pretax cost of debt of 7.68 percent and a cost of equity of 15.2
percent. The firm uses the subjective approach to determine project discount rates.
Currently, the firm is considering a project to which it has assigned an adjustment factor
of -0.5 percent. The firm’s tax rate is 34 percent and its debt-equity ratio is 0.45. The
project has an initial cost of $4.3 million and produces cash inflows of $1.27 million a
year for 5 years. What is the net present value of the project?
A. $121,619
B. $328,895
C. $514,370
D. $561,027
E. $628,721
Answer:
The cash coverage ratio is used to evaluate the:
A. liquidity of a firm.
B. speed at which a firm generates cash.
C. length of time that a firm can pay its bills if no additional cash becomes available.
D. ability of a firm to pay the interest on its debt.
E. relationship between the firm’s cash balance and its current liabilities.
Answer:
Which one of the following tends to be true for the average investor?
A. They frequently earn initially high returns on IPOs when shares are undersubscribed.
B. They generally receive their full allocation of shares even when an IPO is
oversubscribed.
C. They often encounter the “winner’s curse.”
D. They are protected from losses by the Green Shoe provision.
E. Average investors are not allowed to purchase IPOs at the offer price.
Answer:
Which one of the following best defines legal bankruptcy?
A. Negotiating new payment terms with a firm’s creditors
B. A temporary technical insolvency
C. A legal proceeding for liquidating or reorganizing a business
D. The internal process of revising the capital structure of a firm
E. The failure of a firm to meet its financial obligations in a timely manner
Answer:
Which one of the following types of bonds permits its issuer to forego paying interest
payments if certain natural events cause significant losses?
A. PETS
B. PUT
C. CAT
D. PINES
E. LIBOR
Answer:
The spot rate on the Canadian dollar is 1.25. Interest rates in Canada are expected to
average 4.2 percent while they are anticipated to be 3.3 percent in the U.S. What is the
expected exchange rate three years from now?
A. Can$1.2960
B. Can$1.2841
C. Can$1.2613
D. Can$1.2108
E. Can$1.1971
Answer:
Which one of the following is included in the market value of a firm but not in the book
value?
A. Raw materials
B. Partially built inventory
C. Tax liability
D. Reputation of the firm
E. Value of a partially depreciated machine
Answer:
Last year, you earned a rate of return of 12.37 percent on your bond investments.
During that time, the inflation rate was 3.6 percent. What was your real rate of return?
A. 6.30 percent
B. 7.60 percent
C. 7.75 percent
D. 8.47 percent
E. 8.70 percent
Answer: