Travis borrowed $10,000 four years ago at an annual interest rate of 7 percent. The loan
term is six years. Since he borrowed the money, Travis has been making annual
payments of $700 to the bank. Which type of loan does he have?
A. Interest-only
B. Pure discount
C. Compound
D. Amortized
E. Complex
Which one of the following is the vertical intercept of the security market line?
A. Market rate of return
B. Individual security rate of return
C. Market risk premium
D. Individual security beta multiplied by the market risk premium
E. Risk-free rate
Which one of the following is the primary determinant of an investments cost of
capital?
A. Life of investment
B. Initial cash outlay
C.
D. Source of funds used for the investment
E. Investments net present value
Which one of the following is the date on which the board of directors agrees to pay a
dividend and passes a resolution to do so?
A. Date of record
B. Ex-dividend date
C. Payment date
D. Declaration date
E. Public announcement date
The Waffle House pays a constant annual dividend of $1.25 per share. How much are
you willing to pay for one share if you require a 25 percent rate of return?
A. $4.72
B. $5.00
C. $6.52
D. $6.63
E. $6.83
Eric & Jareds Department Store has current liabilities of $7,630, net working capital of
$2,180, inventory of $2,750, and sales of $51,800. What is the quick ratio?
A. 0.79
B. 0.84
C. 0.93
D. 1.09
E. 3.50
Which one of the following characteristics generally applies to commercial paper?
A. Issued only by financial institutions
B. Issued only by corporations
C. Maturities limited to 90 days or less
D. Unsecured
E. Secured by accounts receivable
Classic Cars is considering a project that requires $148,000 of fixed assets that are
classified as five-year property for MACRS. What is the book value of these assets at
the end of year 3? The MACRS allowance percentages are as follows, commencing
with year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
A. $34,210
B. $36,667
C. $42,624
D. $43,450
E. $44,504
Financial leverage:
A. increases as the net working capital increases.
B. is equal to the market value of a firm divided by the firms book value.
C. is inversely related to the level of debt.
D. is the ratio of a firms revenues to its fixed expenses.
E. increases the potential return to the shareholders.
The payback method of analysis ignores which one of the following?
A. Initial cost of an investment
B. Arbitrary cutoff point
C. Cash flow direction
D. Time value of money
E. Timing of each cash inflow
Todd will be receiving a $10,000 bonus one year from now. The process of determining
how much that bonus is worth today is called:
A. aggregating.
B. discounting.
C. simplifying.
D. compounding.
E. extrapolating.
A portfolio has an expected return of 12.3 percent. This portfolio contains two stocks
and one risk-free security. The expected return on Stock X is 9.7 percent and on Stock
Y it is 17.7 percent. The risk-free rate is 3.8 percent. The portfolio value is $78,000 of
which $18,000 is the risk-free security. How much is invested in Stock X?
A. $18,600
B. $19,667
C. $21,375
D. $22,204
E. $24,800
The exchange rate is 1.14 Swiss francs per U.S. dollar. How many U.S. dollars are
needed to purchase 2,000 Swiss francs?
A. $1,021.21
B. $1,754.39
C. $2,280.00
D. $2,850.00
E. $2,918.46
International Traders has common stock outstanding at a market price of $53 per share.
The total market value of the firm is $6,603,800. The firm plans on liquidating one of
its divisions for $550,000 in cash and distributing the proceeds to the shareholders in
the form of a liquidating dividend. What will be the amount per share of that dividend?
A. $3.197
B. $4.414
C. $4.620
D. $4.714
E. $4.782
Organic Foods, Inc. has a cash cycle of 13.5 days, an operating cycle of 21 days, and an
inventory period of 2 days. The company reported cost of goods sold in the amount of
$280,000, and credit sales were $430,000. What is the companys average balance in
accounts payable?
A. $5,753
B. $8,414
C. $10,203
D. $11,844
E. $13,515
Assume you own a portfolio of diverse securities which are each correctly priced.
Given this, the reward-to-risk ratio:
A. for the portfolio must equal 1.0.
B. for the portfolio must be less than the market risk premium.
C. for each security must equal zero.
D. of each security is equal to the risk-free rate.
E. of each security must equal the slope of the security market line.
The quiet period is designed to do which one of the following?
A. Prevent the original investors in a firm from selling their shares and destabilizing a
securitys price during the first six months of public trading
B. Ensure that all potential investors have fair access to identical information
C. Ensure that all bidders are heard in a Dutch auction
D. Stabilize the aftermarket
E. Quiet the market so the SEC can fairly evaluate a new securities offer
The Green Balloon just paid its first annual dividend of $0.12 a share. The firm plans to
increase the dividend by 3.5 percent per year indefinitely. What is the firms cost of
equity if the current stock price is $6.50 a share?
A. 5.35 percent
B. 5.41 percent
C. 14.42 percent
D. 18.79 percent
E. 19.98 percent