February 26, 2019

The standard deviation of a portfolio:

A. is a weighted average of the standard deviations of the individual securities held in

the portfolio.

B. can never be less than the standard deviation of the most risky security in the

portfolio.

C. must be equal to or greater than the lowest standard deviation of any single security

held in the portfolio.

D. is an arithmetic average of the standard deviations of the individual securities which

comprise the portfolio.

E. can be less than the standard deviation of the least risky security in the portfolio.

Today, you earn a salary of $36,000. What will be your annual salary twelve years from

now if you earn annual raises of 3.6 percent?

A. $55,032.54

B. $57,414.06

C. $58,235.24

D. $59,122.08

E. $59,360.45

Which one of the following statements is correct concerning market efficiency?

A. Real asset markets are more efficient than financial markets.

B. If a market is efficient, arbitrage opportunities should be common.

C. In an efficient market, some market participants will have an advantage over others.

D. A firm will generally receive a fair price when it issues new shares of stock.

E. New information will gradually be reflected in a stock's price to avoid any sudden

change in the price of the stock.

Check kiting is:

A. used by most firms as an ethical means of handling its cash reserves.

B. the process of withdrawing all funds from a bank account as soon as the funds are

available.

C. the central core of a good cash management system.

D. using uncollected cash to invest in short-term, liquid assets.

E. increasingly popular due to recent banking law changes.

The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22

percent. What is the rate of inflation?

A. 5.08 percent

B. 5.64 percent

C. 6.24 percent

D. 6.53 percent

E. 6.71 percent

Your average customer is located 4.3 mailing days away from your firm. You have

determined that, on average, it is taking your staff 1.5 days to process payments

received from customers. In addition, it takes an average of 2.2 days for your funds to

be available for use once you have made your bank deposit. What is your firm's

collection time?

A. 2.2 days

B. 3.7 days

C. 4.3 days

D. 5.8 days

E. 8.0 days

On the day you entered college you borrowed $25,000 from your local bank. The terms

of the loan include an interest rate of 4.75 percent. The terms stipulate that the principal

is due in full one year after you graduate. Interest is to be paid annually at the end of

each year. Assume that you complete college in four years. How much total interest will

you pay on this loan?

A. $5,266.67

B. $5,400.00

C. $5,937.50

D. $6,529.00

E. $6,607.11

Which of the following defines a note?

I. secured

II. unsecured

III. maturity less than 10 years

IV. maturity in excess of 10 years

A. III only

B. I and III only

C. I and IV only

D. II and III only

E. II and IV only

South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per

share and a market price of $7.50 a share. The firm just announced a 5-for-2 stock split.

What will the par value of the stock be after the split?

A. $0.40

B. $0.80

C. $1.00

D. $1.40

E. $1.60

Hungry Howie's maintains a constant payout ratio. The firm is currently operating at

full capacity. What is the maximum rate at which the firm can grow without acquiring

any additional external financing?

A. 9.74 percent

B. 10.52 percent

C. 11.06 percent

D. 11.58 percent

E. 12.23 percent

What is the standard deviation of the returns on a portfolio that is invested in stocks A,

B, and C? Twenty five percent of the portfolio is invested in stock A and 40 percent is

invested in stock C.

A. 6.31 percent

B. 6.49 percent

C. 7.40 percent

D. 7.83 percent

E. 8.72 percent

Under the current cash sales only policy Blue Bird, Inc., will sell 215 units a month at a

price of $469 each. The variable cost per unit is $305 and the monthly interest rate is

1.7 percent. Based on a recent survey, the firm believes it can sell an additional 36 units

per month if it offers a net 30 credit policy. What is the net present value of the switch

using the one-shot approach?

A. $212,806

B. $231,543

C. $235,479

D. $248,946

E. $251,118

Seaweed Mfg., Inc. is currently operating at only 86 percent of fixed asset capacity.

Fixed assets are $387,000. Current sales are $510,000 and are projected to grow to

$664,000. What amount must be spent on new fixed assets to support this growth in

sales?

A. $0

B. $22,654

C. $46,319

D. $79,408

E. $93,608

What is the amount of the excess return on a U.S. Treasury bill if the risk-free rate is 2.8

percent and the market rate of return is 8.35 percent?

A. 0.00 percent

B. 2.80 percent

C. 5.55 percent

D. 8.35 percent

E. 11.15 percent

A group of five private investors recently loaned $6 million to Henderson Hardware for

ten years at 9 percent interest. This loan is best described as a:

A. private placement.

B. debt SEO.

C. notes payable.

D. debt IPO.

E. term loan.

The Snow Hut has analyzed the carrying and shortage costs associated with its cash

holdings and determined that the firm should ideally maintain a cash balance of $3,600.

This $3,600 represents which one of the following to the firm?

A. target cash balance

B. concentration balance

C. available balance

D. selected cash amount

E. compensating balance

Diets For You announced today that it will begin paying annual dividends next year.

The first dividend will be $0.12 a share. The following dividends will be $0.15, $0.20,

$0.50, and $0.60 a share annually for the following 4 years, respectively. After that,

dividends are projected to increase by 4 percent per year. How much are you willing to

pay to buy one share of this stock today if your desired rate of return is 8.5 percent?

A. $9.67

B. $9.94

C. $10.38

D. $10.50

E. $10.86

The common stock of Pierson Enterprises has historically had a high dividend yield and

is expected to continue to do so. As a result, the majority of its shareholders are

individuals and entities that are seeking a regular source of cash income. Most of these

shareholders pay either no taxes or a relatively low amount of taxes. The fact that most

of these shareholders have similar characteristics is referred to by which one of the

following terms?

A. information content effect

B. clientele effect

C. efficient markets hypothesis

D. distribution effect

E. market reaction effect

Which one of the following statements is correct?

A. Firms prefer to cut dividend payments rather than borrow money to fund a short-

term cash need.

B. Share repurchases tend to increase agency costs.

C. Maintaining a steady dividend is a key goal of most dividend-paying firms.

D. Tax rates are the key factor in determining a firm's dividend policy.

E. Stock prices tend to ignore expected changes in dividend payments.

What is the probability that small-company stocks will produce an annual return that is

more than one standard deviation below the average?

A. 1.0 percent

B. 2.5 percent

C. 5.0 percent

D. 16 percent

E. 32 percent

Which two of the following are the key considerations for a seller who is establishing

the length of the credit period being offered to a customer?

I. seller's operating cycle

II. customer's operating cycle

III. seller's inventory period

IV. customer's inventory period

A. I and II

B. II and III

C. III and IV

D. II and IV

E. I and IV

The following is the sales budget for Duck-n-Run, Inc., for the first quarter of 2009:

The accounts receivable balance at the end of the previous quarter was $45,000

($32,000 of which was uncollected December sales.) What is the amount of the January

collections?

A. $112,400.00

B. $112,408.16

C. $115,703.03

D. $122,356.33

E. $125,400.00

Which of the following statements related to financial risk are correct?

I. Financial risk is the risk associated with the use of debt financing.

II. As financial risk increases so too does the cost of equity.

III. Financial risk is wholly dependent upon the financial policy of a firm.

IV. Financial risk is the risk that is inherent in a firm's operations.

A. I and III only

B. II and IV only

C. II and III only

D. I, II, and III only

E. I, II, III, and IV

Steve, the sales manager for TL Products, wants to sponsor a one-week "Customer

Appreciation Sale" where the firm offers to sell additional units of a product at the

lowest price possible without negatively affecting the firm's profits. Which one of the

following represents the price that should be charged for the additional units during this

sale?

A. average variable cost

B. average total cost

C. average total revenue

D. marginal revenue

E. marginal cost

Browning Enterprises currently has all fixed-rate debt. The firm would like to convert

part of this to floating-rate debt. Which one of the following will accomplish this for the

firm?

A. option on floating-rate bonds

B. forward contract on U.S. Treasury bills

C. interest rate swap

D. currency swap

E. interest rate call option

Uncovered interest parity is defined as:

A. E(St) = S0 × [1 + (hFC - hUS)]t.

B. E(St) = S0 × [1 + (RFC - RUS)]t.

C. E(St) = S0 × [1 - (RFC - RUS)]t.

D. E(St) = S0 × [1 + (RUS - RFC)]t.

E. E(St) = S0 × [1 + (RFC + RUS)]t.

Today, you can exchange $1 for 0.6211. Last week, 1 was worth $1.6104. How much

profit or loss would you now have if you had converted 100 into dollars last week?

A. loss of ₤1.57

B. loss of ₤0.39

C. loss of ₤0.07

D. profit of ₤0.02

E. profit of ₤1.59

You are paying an effective annual rate of 18.974 percent on your credit card. The

interest is compounded monthly. What is the annual percentage rate on this account?

A. 17.50 percent

B. 18.00 percent

C. 18.25 percent

D. 18.64 percent

E. 19.00 percent

Percy's Wholesale Supply has earnings before interest and taxes of $106,000. Both the

book and the market value of debt is $170,000. The unlevered cost of equity is 15.5

percent while the pre-tax cost of debt is 8.6 percent. The tax rate is 38 percent. What is

the firm's weighted average cost of capital?

A. 11.94 percent

B. 12.65 percent

C. 13.45 percent

D. 14.01 percent

E. 14.37 percent

Bob's Warehouse has a pre-tax cost of debt of 8.4 percent and an unlevered cost of

capital of 14.6 percent. The firm's tax rate is 37 percent and the cost of equity is 18

percent. What is the firm's debt-equity ratio?

A. 0.72

B. 0.76

C. 0.79

D. 0.82

E. 0.87

The IRS will disallow any lease that:

A. has a lease term in excess of three years.

B. has a term that is less than one-half of the economic life of the asset.

C. involves a lessee that has net operating losses.

D. appears to exist solely to defer taxes.

E. reduces the combined tax obligations of the lessor and the lessee.