The expected return on a security depends on which of the following?I. Risk-free rate
of returnII. Amount of the securitys unique riskIII Market rate of returnIV. Standard
deviation of returns
A. I and III only
B. II and IV only
C. II, III, and IV only
D. I, III, and IV only
E. I, II, III, and IV
Lesters Fried Chickn purchased its building 11 years ago at a cost of $139,000. The
building is currently valued at $179,000. The firm has other fixed assets that cost
$66,000 and are currently valued at $58,000. To date, the firm has recorded a total of
$79,000 in depreciation on the various assets. The company has current liabilities of
$36,600 and net working capital of $18,400. What is the total book value of the firms
assets?
A. $181,000
B. $241,000
C. $331,000
D. $339,000
E. $379,000
The Treasury yield curve plots the yields on Treasury notes and bonds relative to the
____ of those securities.
A. face value
B. market price
C. maturity
D. coupon rate
E. issue date
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
A firm has net income of $31,300, depreciation of $5,100, taxes of $14,600, and interest
paid of $3,100. What is the cash coverage ratio?
A. 8.78
B. 10.10
C. 14.14
D. 16.32
E. 17.45
Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided
to create a business together renting surfboards, paddle boats, and inflatable devices in
California. Will and Bill will equally share in the decision making and in the profits or
losses. Which type of business did they create if they both have full personal liability
for the firms debts?
A. Sole proprietorship
B. Limited partnership
C. Corporation
D. Joint stock company
E. General partnership
The Sarbanes-Oxley Act in 2002 was prompted by which one of the following from the
1990s?
A. Increased stock market volatility
B. Corporate accounting and financial fraud
C. Increased executive compensation
D. Increased foreign investment in U.S. stock markets
E. Increased use of tax loopholes
The common stock of Whites Hardware closed at $36.80 a share today. Tomorrow
morning, the stock goes ex-dividend. The dividend that is being paid this quarter is
$1.40 a share. The tax rate on dividends is 25 percent. All else equal, what should the
opening stock price be tomorrow morning?
A. $35.19
B. $35.40
C. $35.52
D. $35.75
E. $36.80
You expect the inflation rate to be 3.8 percent and the U.S. Treasury bill yield to be 3.9
percent for the next year. The risk premium on small-company stocks is 12.6 percent.
What nominal rate of return do you expect to earn on small-company stocks next year?
A. 15.5 percent
B. 16.5 percent
C. 16.8 percent
D. 9.2 percent
E. 8.8 percent
According to the efficient markets hypothesis, professional investors will earn:
A. excess profits over the long-term.
B. excess profits, but only on short-term investments.
C. a dollar return equal to the value paid for an investment.
D. a return that cannot be accurately predicted because investments are subject to the
random movements of the markets.
E. a return that “beats the market.”
The expected rate of return on Delaware Shores, Inc. stock is based on three possible
states of the economy. These states are boom, normal, and recession which have
probabilities of occurrence of 20 percent, 75 percent, and 5 percent, respectively. Which
one of the following statements is correct concerning the variance of the returns on this
stock?
A. The variance must decrease if the probability of occurrence for a boom increases.
B. The variance will remain constant as long as the sum of the economic probabilities is
100 percent.
C. The variance can be positive, zero, or negative, depending on the expected rate of
return assigned to each economic state.
D. The variance must be positive provided that each state of the economy produces a
different expected rate of return.
E. The variance is independent of the economic probabilities of occurrence.
Operating cash flow is defined as:
A. a firms net profit over a specified period of time.
B. the cash that a firm generates from its normal business activities.
C. a firms operating margin.
D. the change in the net working capital over a stated period of time.
E. the cash that is generated and added to retained earnings.
An investment has conventional cash flows and a profitability index of 1.0. Given this,
which one of the following must be true?
A. The internal rate of return exceeds the required rate of return.
B. The investment never pays back.
C. The net present value is equal to zero.
D. The average accounting return is 1.0.
E. The net present value is greater than 1.0.
By definition, a bank that pays simple interest on a savings account will pay interest:
A. only at the beginning of the investment period.
B. on interest.
C. only on the principal amount originally invested.
D. on both the principal amount and the reinvested interest.
E. only if all previous interest payments are reinvested.
Newborn Nursery has 8,000 bonds outstanding with a face value of $1,000 each. The
coupon rate is 6.5 percent and the tax rate is 40 percent. What is the present value of the
interest tax shield?
A. $2.82 million
B. $2.83 million
C. $3.09 million
D. $3.13 million
E. $3.20 million
A firm has $42,900 in receivables and $211,800 in total assets. The total asset turnover
rate is 1.40 and the profit margin is 5.2 percent. How long on average does it take the
firm to collect its receivables?
A. 6.91 days
B. 9.45 days
C. 11.68 days
D. 31.25 days
E. 52.81 days