You would like to invest $19,000 and have a portfolio expected return of 12.3 percent.
You are considering two securities, A and B. Stock A has an expected return of 15.6
percent and B has an expected return of 10.3 percent. How much should you invest in
Stock A if you invest the balance in Stock B?
A. $6,807
B. $7,170
C. $7,411
D. $7,937
E. $8,626
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
Assume you can exchange $1 for either 1.0 or 0.50 in the U.S. In the London
market, you can exchange 1 for 0.52. This situation creates an opportunity to profit
immediately from which one of the following?
A. Futures arbitrage
B. Currency hedge
C. Interest rate swap
D. Absolute purchasing power parity
E. Triangle arbitrage
Which of the following should be included when compiling pro forma statements for a
proposed investment?I. Forecasted salesII. Start-up costsIII. Aftertax salvage value of
any assets soldIV. Anticipated changes in net working capital
A. I only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
Which one of the following is the hypothesis that securities markets are efficient?
A. Geometric market hypothesis
B. Standard deviation hypothesis
C. Efficient markets hypothesis
D. Capital market hypothesis
E. Financial markets hypothesis
Which one of the following statements concerning market and book values is correct?
A. The market value of accounts receivable is generally higher than the book value of
those receivables.
B. The market value tends to provide a better guide to the actual worth of an asset than
does the book value.
C. The market value of fixed assets will always exceed the book value of those assets.
D. Book values represent the amount of cash that will be received if an asset is sold.
E. The current book value of equipment purchased last year is equal to the initial cost of
the equipment.
A stock has a beta of 1.56 and an expected return of 17.3 percent. A risk-free asset
currently earns 5.1 percent. If a portfolio of the two assets has a beta of 1.06, what are
the portfolio weights?
A. Stock weight = 0.28; risk-free weight = 0.72
B. Stock weight = 0.032; risk-free weight = 0.68
C. Stock weight = 0.44; risk-free weight = 0.56
D. Stock weight = 0.68; risk-free weight = 0.32
E. Stock weight = 0.72; risk-free weight = 0.28
Which one of the following statements concerning disbursement float is correct?
A. Disbursement float is the period of time between a firm making a bank deposit and
the funds from that deposit being available to the firm.
B. Disbursement float decreases when a check is delayed in the mail due to an extended
holiday weekend.
C. Disbursement float causes the available balance to exceed the ledger balance.
D. Disbursement float is being totally eliminated by the Check Clearing Act for the 21st
Century.
E. Disbursement float exists when the available balance is less than the book balance.
Which one of the following is an example of long-run exposure to exchange rate risk?
Ignore all fees and transaction costs.
A. A U.S. firm owns land in Mexico valued at three million pesos. That value has
remained constant in Mexican pesos for the past year. However, the firms financial
statement reflects a 3 percent decrease in the value of that land for last year.
B. A U.S. firm sells $250,000 worth of goods to Peru. However, when the payment for
those goods arrives and the U.S. firm exchanges the foreign currency, it receives only
$248,700.
C. A U.S. firm purchases $120,000 worth of goods from Canada. However, by the time
the goods arrive and the invoice is payable, the cost of those goods has increased to
$120,400.
D. A few years ago, a U.S. firm built a factory in Asia to take advantage of the lower
labor costs. Today, the Asian labor costs have increased such that the Asian factory no
longer provides a cost advantage over a U.S. factory.
E. A U.S. traveler withdrew an extra $2,000 in cash from her savings account to take
with her as emergency funds when she traveled to Mexico. Before leaving on her trip,
she exchanged this money into Mexican pesos. She never used any of this money
during her vacation, so exchanged all of it back into U.S. dollars on her return and
received $1,960.
Which one of the following statements is correct?
A. If the IRR exceeds the required return, the profitability index will be less than 1.0.
B. The profitability index will be greater than 1.0 when the net present value is
negative.
C. When the internal rate of return is greater than the required return, the net present
value is positive.
D. Projects with conventional cash flows have multiple internal rates of return.
E. If two projects are mutually exclusive, you should select the project with the shortest
payback period.
A stock has a beta of 1.86, the expected return on the market is 14.72, and the risk-free
rate is 4.65. What must the expected return on this stock be?
A. 15.67 percent
B. 16.75 percent
C. 17.10 percent
D. 20.46 percent
E. 23.38 percent
Which one of the following is probably the most effective means of increasing investors
interest in an IPO?
A. Extending the lockup period
B. Issuing the IPO through a rights offering
C. Underpricing the IPO
D. Eliminating the quiet period
E. Eliminating the Green Shoe option
A “floater” bond frequently has a:
A. flexible deferred call period.
B. fixed yield to maturity but a flexible coupon payment.
C. government guarantee.
D. fixed-dollar obligation.
E. put provision.
What is the primary purpose of bond covenants?
A. Meet regulatory requirements
B. Describe repayment terms
C. Protect the lender
D. Define a bonds rating
E. Increase a bonds seniority position
Which one of the following would be the most common evidence of indebtedness when
a sale is made on open account?
A. Sight draft
B. Commercial draft
C. Bankers acceptance
D. Promissory note
E. Invoice
Which one of the following statements is correct?
A. The financial market generally reacts the same to a new issue of equity as it does to a
new issue of debt as long as the issuer is the same.
B. Issuing new equity shares is always viewed by the market as a positive event.
C. Informed managers tend to issue new securities when the existing securities are
underpriced.
D. A decline in the price of existing stock when a new issue is released is a direct cost
of selling securities.
E. A firms existing shareholders would prefer that new securities be issued when those
securities are overpriced rather than underpriced.
Which one of the following statements is correct?
A. Both preferred stock and corporate bonds can be callable.
B. Both preferred stock and corporate bonds have a stated liquidation value of $1,000
each.
C. Interest payments to bondholders as well as dividend payments to preferred
shareholders are tax-deductible expenses for the issuing firm.
D. Bondholders generally receive a fixed payment while preferred shareholders receive
a variable payment.
E. Preferred shareholders receive preferential treatment over bondholders in a
liquidation.
A bond has a par value of $1,000, a current yield of 7.5 percent, and semiannual interest
payments. The bond quote is 98.6. What is the amount of each coupon payment?
A. $32.07
B. $36.98
C. $37.50
D. $72.31
E. $75.00
A cost-cutting project will decrease costs by $58,500 a year. The annual depreciation on
the projects fixed assets will be $10,300 and the tax rate is 34 percent. What is the
amount of the change in the firms operating cash flow resulting from this project?
A. $24,552
B. $26,791
C. $25,805
D. $38,610
E. $42,112
The Toy Chest pays an annual dividend of $4.80 per share and sells for $93.20 a share
based on a market rate of return of 15 percent. What is the capital gains yield?
A. 7.35 percent
B. 7.78 percent
C. 9.23 percent
D. 9.85 percent
E. 10.00 percent