Which one of the following occurs when interest rate parity exists between Countries A
and B?
A. Country A investors are indifferent between risk-free investments in Countries A and
B.
B. Forward exchange rates for Countries A and B must be equal for all time periods.
C. Risk-free interest rates in Countries A and B must be equal.
D. Spot and forward exchange rates between the currencies of the two countries must
be equal.
E. Significant covered interest arbitrage opportunities between currencies of Countries
A and B must exist.
Which one of the following is the quoted price of a bond?
A. Par value
B. Discount price
C. Face value
D. Dirty price
E. Clean price
The price at which a dealer will purchase a bond is called the _____ price.
A. asked
B. face
C. call
D. put
E. bid
You own a portfolio of two stocks, A and B. Stock A is valued at $6,500 and has an
expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is
the expected return on the portfolio if the portfolio value is $9,500?
A. 9.58 percent
B. 9.62 percent
C. 9.74 percent
D. 10.07 percent
E. 10.22 percent
Assume the total cost of a college education will be $285,000 when your child enters
college in 22 years. You presently have $35,000 to invest. What annual rate of interest
must you earn on your investment to cover the cost of your childs college education?
A. 8.65 percent
B. 9.40 percent
C. 10.00 percent
D. 10.60 percent
E. 11.00 percent
Last year, Paul invested $38,000 in Oil Town stock, $11,000 in long-term government
bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he earned returns
of 12.1 percent, 7.2 percent, and 4.1 percent, respectively. What was the nominal risk
premium on Oil Towns stock for the year?
A. 2.1 percent
B. 4.9 percent
C. 6.0 percent
D. 7.8 percent
E. 8.0 percent
Which one of the following reduces the number of shares outstanding but does not
change a firms total equity?
A. Stock split
B. Distribution
C. Reverse split
D. Liquidation
E. Redemption
You are analyzing a project and have developed the following estimates. The
depreciation is $52,000 a year and the tax rate is 34 percent. What is the worst-case
operating cash flow?
A. -$32,509
B. -$19,288
C. -$4,225
D. $27,556
E. $48,106
To be a member of the NYSE, you must:
A. be a primary dealer.
B. buy a seat.
C. own a trading license.
D. be registered as a floor trader.
E. be a DMM.
The Black Horse is currently considering a project that will produce cash inflows of
$12,000 a year for three years followed by $6,500 in year 4. The cost of the project is
$38,000. What is the profitability index if the discount rate is 7 percent?
A. 0.96
B. 0.99
C. 1.04
D. 1.09
E. 1.12
Miller and Sons is evaluating a project with the following cash flows:
The company uses a 10 percent interest rate on all of its projects. What is the MIRR of
the project using the reinvestment approach? The discounting approach? The
combination approach?
A. 8.46 percent; 7.29 percent; 8.59 percent
B. 8.46 percent; 7.38 percent; 8.61 percent
C. 8.54 percent; 7.29 percent; 8.61 percent
D. 8.54 percent; 7.38 percent; 8.59 percent
E. 8.54 percent; 8.23 percent; 8.61 percent
Which one of the following terms applies to a bond that initially sells at a deep discount
and pays no interest payments?
A. Callable
B. Income
C. Zero coupon
D. Convertible
E. Tax-free