The forward rate market is dependent upon:
A. current forward rates exceeding current spot rates.
B. current spot rates exceeding current forward rates over time.
C. current spot rates equaling current forward rates on average over time.
D. forward rates equaling the actual future spot rates on average over time.
E. current spot rates equaling the actual future spot rates on average over time.
Answer:
A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:
A. $1 in total equity.
B. $.53 in total assets.
C. $1 in current assets.
D. $.53 in total equity.
E. $1 in fixed assets.
Answer:
D & F, Inc. expects credit sales of $980, $1,460, $1,730 and $950 for the months of
April through July, respectively. The firm collects 25 percent of sales in the month of
sale, 65 percent of sales in the month following the month of sale, and 8 percent in the
second month following the month of sale. The remaining sales are never collected.
How much money does the firm expect to collect in the month of July?
A. $1,645.50
B. $1,478.80
C. $1,571.10
D. $1,374.20
E. $1,475.50
Answer:
All Rite Co. has arranged a line of credit of $225,000 with an interest rate of 8.25
percent and a compensating balance requirement of 1.5 percent, which is based on the
total amount borrowed. Assume the firm uses this source of funding to purchase a
$167,000 piece of equipment and repays the loan in a lump sum at the end of one year.
What is the effective interest rate?
A. 9.75%
B. 9.27%
C. 8.08%
D. 8.26%
E. 8.38%
Answer:
If a call has a positive intrinsic value at expiration the call is said to be:
A. funded.
B. unfunded.
C. at the money.
D. in the money.
E. out of the money.
Answer:
The corporate controller is generally responsible for which one of these functions?
A. capital expenditures
B. cash management
C. tax reporting
D. financial planning
E. credit management
Answer:
A portfolio has 45 percent of its funds invested in Security One and 55 percent invested
in Security Two. Security One has a standard deviation of 6 percent. Security Two has a
standard deviation of 12 percent. The securities have a coefficient of correlation of .62.
What is the portfolio variance?
A. .006946
B. .007295
C. .007157
D. .008104
E. .007506
Answer:
When analyzing the NPV of a decision to switch from a cash only sales policy to a
credit policy with an early payment discount, the firm is least apt to consider the:
A. size of the discount.
B. length of the credit period.
C. firm’s variable costs.
D. expected change in sales.
E. firm’s fixed costs.
Answer:
What is the cost of four November 35 put option contracts on KNJ stock given the
following price quotes?
A. $280
B. $40
C. $2,640
D. $3,075
E. $2,040
Answer:
Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the
market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom
stock?
A. 8.09%
B. 12.76%
C. 9.59%
D. 10.25%
E. 17.24%
Answer:
A bond with a face value of $1,000 can be converted into 33 shares of stock. What is
the conversion value if the stock is selling for $29.80 a share?
A. $30.30
B. $33.33
C. $983.40
D. $1,000
E. $0
Answer:
Which of these methods discount levered cash flows?
A. APV
B. FTE
C. WACC
D. both APV and WACC
E. both APV and FTE
Answer:
Drawing conclusions from too small of a sampling describes the behavioral
characteristic of:
A. conservatism.
B. familiarity.
C. representativeness.
D. overconfidence.
E. underreaction.
Answer:
Assume you can exchange $1 for .6392 today. Last week, 1 was worth $1.5703. If you
had converted 100 into dollars last week and then exchanged your money back into
dollars today, you would now have a:
A. profit of $1.48.
B. loss of $.50.
C. profit of 2.01.
D. loss of $2.68.
E. profit of 37.
Answer:
Which one of these applies to floating-rate bonds?
A. Bondholders can generally redeem their bonds at par at any time.
B. Coupon payments are variable while the par value is fixed.
C. Interest adjustments are accrued and paid on the maturity date.
D. Coupon payments are fixed but the par value is variable.
E. Bondholders frequently are granted a put provision at the current market price.
Answer:
The modified internal rate of return:
A. is used as the discount rate for all NPV calculations.
B. applies only to profitability calculations.
C. is used to make accept/reject decisions when no discount rate can be assigned.
D. is computed by combining cash flows until only one change in sign remains.
E. assumes all projects are financing projects.
Answer:
A financial institution has equity equal to one-tenth of its assets. If its asset duration is
currently equal to its liability duration, then to immunize, the firm needs to:
A. decrease the duration of its assets.
B. increase the duration of its assets.
C. decrease the duration of its liabilities.
D. maintain the equal durations.
E. increase either the duration of its assets or of its liabilities.
Answer:
The CAPM has an advantage over DDM because the CAPM:
A. explicitly adjusts for risk.
B. applies to firms that pay dividends.
C. is more simplistic.
D. specifically considers a firm’s degree of operating leverage.
E. ignores changes in the overall market over time.
Answer:
You would like to combine a highly risky stock with a beta of 2.6 with U.S. Treasury
bills in such a way that the risk level of the portfolio is equivalent to the risk level of the
overall market. What percentage of the portfolio should be invested in Treasury bills?
A. 57.91%
B. 61.54%
C. 50.00%
D. 38.46%
E. 42.09%
Answer:
Jackson amp; Sons uses packing machines to prepare its products for shipping. One
machine costs $178,000 and lasts about 5 years before it needs replaced. The operating
cost per machine is $16,000 a year. What is the equivalent annual cost of one machine if
the required rate of return is 12 percent?
A. $38,556.67
B. $65,378.93
C. $79,004.12
D. $81,006.15
E. $54,224.08
Answer:
Which one of the followingis not associated with forward contracts?
A. making delivery
B. taking delivery
C. deliverable instrument
D. cash transaction
E. delayed delivery
Answer:
Zelo stock has a beta of 1.23. The risk-free rate of return is 2.86 percent and the market
rate of return is 11.47 percent. What is the amount of the risk premium on Zelo stock?
A. 9.47%
B. 12.60%
C. 11.54%
D. 10.59%
E. 12.30%
Answer:
Barges’ has an asset beta of .57, the risk-free rate is 4.3 percent, and the market risk
premium is 7.7 percent. What is the equity beta if the firm has a debt-equity ratio of .
56?
A. .46
B. .89
C. .74
D. .37
E. .32
Answer:
A dominant portfolio within an opportunity set that has the lowest possible level of risk
is referred to as the:
A. efficient frontier.
B. minimum variance portfolio.
C. upper tail of the efficient set.
D. tangency portfolio.
E. optimal covariance portfolio.
Answer:
The average annual return on long-term corporate bonds for the period of 1926 to 2014
was ________ percent.
A. 3.8
B. 5.8
C. 6.4
D. 7.9
E. 8.4
Answer:
Joe’s has old, fully depreciated equipment. Moe’s just purchased all new equipment
which will be depreciated over eight years. If Joe’s and Moe’s have the same sales,
costs, tax rate, and enterprise value, then:
A. Joe’s will have a lower profit margin.
B. Joe’s will have a lower return on equity.
C. Moe’s will have a higher net income.
D. Moe’s and Joe’s will have the same EV multiple.
E. Moe’s will have a lower EV multiple.
Answer:
Accepting a positive net present value (NPV) project:
A. indicates the project will pay back within the required period of time.
B. means the present value of the expected cash flows is equal to the project’s cost.
C. ignores the inherent risks within the project.
D. guarantees all cash flow assumptions will be realized.
E. is expected to increase the stockholders’ value by the amount of the NPV.
Answer:
Which one of the following lists dividend events in the correct chronological order from
earliest to latest?
A. date of record, declaration date, ex-dividend date
B. date of record, ex-dividend date, declaration date
C. declaration date, date of record, ex-dividend date
D. declaration date, ex-dividend date, date of record
E. ex-dividend date, date of record, declaration date
Answer:
Firm A has a market value of $6,000 with 150 shares outstanding and a price per share
of $40. Firm B has a market value of $800 with 40 shares outstanding and a price per
share of $20. Firm A is acquiring Firm B by exchanging 25 of its shares for all 40 of
Firm B’s shares. Assume the merger creates $500 of synergy. What will be the value of
Firm B’s shareholders’ stake in the merged firm?
A. $800
B. $1,021.30
C. $1,050.00
D. $1,042.86
E. $1,000.00
Answer:
You sold a put contract on EDF stock at an option price of $.50 and an exercise price of
$21. Today, EDF stock is selling for $20 a share and your option position was closed
out. Ignoring transaction costs and taxes, what is your total profit?
A. -$150
B. -$60
C. -$50
D. $60
E. $150
Answer:
A project has been assigned a discount rate of 12 percent. If the project starts
immediately, it will have an initial cost of $480 and cash inflows of $350 a year for
three years. If the start is delayed one year, the initial cost will rise to $520 and the cash
flows will increase to $385 a year for three years. What is the value of the option to
wait?
A. $.70
B. $1.08
C. $1.67
D. $2.20
E. $.20
Answer:
A firm is currently valued at $175 in a boom and $110 in a recession. The chance of
either economic state occurring is 50 percent. The firm owes $120 to its debt holders.
What is the value of the firm to the shareholders in a recession?
A. $22.50
B. $55.00
C. $27.50
D. “$10.00
E. $0
Answer:
Alabaster Incorporated wants to be levered at a debt-to-value ratio of .6. The cost of
debt is 9 percent, the tax rate is 35 percent, and the cost of equity for an all-equity firm
is 12 percent. What will be Alabaster’s cost of equity?
A. 8.31%
B. 10.45%
C. 12.08%
D. 14.93%
E. 13.56%
Answer:
The interest paid on any municipal bond is:
A. free of default risk.
B. subject to default risk and is exempt from state income taxation.
C. free of both default risk and federal income taxation.
D. exempt from federal income taxation and may or may not be exempt from state
taxation.
E. taxable at the federal level and tax exempt at the state and local level.
Answer:
A convertible bond is valued at $1,062, has a conversion ratio of 25, and an option
premium of $3. What is the conversion value if the straight bond value is equal to the
bond’s par value? A. $1,062.00
A. $1,042.36
B. ANSC. $1,059.00
C. $1,042.48
D. $1,065.00
Answer: