You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over
15 years at 8% compounded monthly. Calculate the total amount of interest you will
pay over the life of the loan.
A.$47,451
B.$93,677
C.$126,226
D.$299,090
____ indicate the firm’s capacity to meet its debt obligations, both short term and long
term.
A.Liquidity ratios
B.Asset management ratios
C.Debt management ratios
D.Profitability ratios
The price of a stock is $10.00. It is expected to pay an annual dividend of $0.40 next
year. If investors require a return of 15% on similar stocks, what is the firm’s growth
rate?
A.1%
B.21%
C.11%
D.1.1%
What is the value of a share of Henley Inc. to an investor who requires a 12 percent rate
of return if Henley’s last dividend was $1.20? Assume earnings and dividends are
expected to grow indefinitely at a rate of 7% per year.
A.$24.00
B.$18.34
C.$25.68
D.None of the above
Dividends are the basis of _____for stocks.
A.trading
B.equity
C.value
D.exchange
A financial market is:
A.a place where investors can buy and sell securities.
B.the stock market.
C.regulated by well-defined rules and regulations.
D.All of the above
Stock A has a required return of 18% and a beta of 1.4. The expected market return is
14%. What is the risk-free rate?
A.0.6%
B.1.2%
C.3.0%
D.4.0%
E.6.0%
_____ give an indication of how investors feel about the company’s financial future.
A.Liquidity ratios
B.Debt management ratios
C.Asset management ratios
D.Market value ratios
During the last year Alpha Co had Net Income of $150, paid $20 in dividends, and sold
new stock for $40. Beginning equity for the year was $700. Ending Equity was:
A.$830.
B.$840.
C.$850.
D.$870.
A revolving-credit agreement between a firm and its bankers:
A.is a contractual agreement between the firm and its bank.
B.does not need to be “cleaned up” during the term of the arrangement.
C.involves payment of a commitment fee to the bank.
D.All of the above
If a series of equal payments is paid regularly out of a bank account which earns a
constant rate of interest, the ____ is the amount that must be in the bank at the
beginning of the series to just fund all of the payments.
A.future value of an annuity due
B.present value of an annuity due
C.future value of an ordinary annuity
D.present value of an ordinary annuity
E.None of the above
In estimating cash flows, the firm should exclude:
A.the interest expense on debt financing.
B.opportunity costs.
C.sunk costs.
D.a and c
E.a, b, and c
The current price of Zebar is $32.00 and its last dividend was $.60. What is its return if
dividends are expected to grow indefinitely at 8 percent?
A.9.88%
B.11.38%
C.18.75%
D.None of the above
Which of the following series of cash flows includes an imbedded annuity?
A.10, 5, 6, 7, 8, 9, 10
B.6, 6, 6, 6, 6, 6, 6
C.5, 6, 7, 7, 7, 6, 7
D.8, 7, 6, 5, 4, 3, 2
E.None of the above has an embedded annuity.
A bank has agreed to loan you $10,000 at 11% for 5 years. You are required to make
equal, annual, end-of-year payments that include both principal and interest on the
outstanding balance. Determine the amount of these annual payments (to the nearest
dollar).
A.$2,000
B.$3,100
C.$2,706
D.$1,100
The term structure of interest rates or yield curve is the pattern of interest rate yields for
securities that differ only in:
A.default risk.
B.liquidity premiums.
C.the yield to maturity.
D.the length of time to maturity.