A U.S. firm has total assets valued at £318,000 located in London. This valuation did
not change from last year. Last year, the exchange rate was £.61 = $1. Today, the
exchange rate is £.63 = $1. By what amount did these assets change in value on the
firm’s U.S. financial statements?
A. -$16,549.57
B. -$13,511.03
C. -$12,248.91
D. $13,511.03
E. $0
City Motors will sell a $15,000 car for $345 a month for 52 months. What is the interest
rate?
A. 9.28 percent
B. 8.67 percent
C. 8.53 percent
D. 9.10 percent
E. 8.38 percent
The spot rate between Canada and the U.S. is C$1.1381 = $1, while the one-year
forward rate is Can$1.1407 = $1. The risk-free rate in Canada is 2.4 percent. The
risk-free rate in the U.S. is 2.1 percent. How much profit can you earn on a loan of
$1,000 by utilizing covered interest arbitrage?
A. $.81
B. $.67
C. $.36
D. $.49
E. $.57
Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits
on ABC stock based on the knowledge he has related to his experiments if the financial
markets are:
A. weak form efficient.
B. strong form efficient.
C. semistrong form efficient.
D. efficient at any level.
E. aware that the trader is an insider.
GN Supply wants to issue new 10-year, $1,000 face value bonds at par. The company
currently has 6.35 percent coupon bonds on the market that sell for $983.20, make
semiannual interest payments, and mature in 10 years. What coupon rate should the
company set on its new bonds?
A. 6.38 percent
B. 6.37 percent
C. 6.50 percent
D. 6.47 percent
E. 6.58 percent
The cost of capital for a project depends primarily on which one of the following?
A. Source of funds used for the project
B. Division within the firm that undertakes the project
C. Project’s modified internal rate of return
D. How the project uses its funds
E. Project’s fixed costs
Which one of the following analytical methods is based on net income?
A. Profitability index
B. Internal rate of return
C. Average accounting return
D. Modified internal rate of return
E. Payback
Kelly decided to accept the risk and purchased a high growth stock. Her returns for the
past five years are 32 percent, 24 percent, -48 percent, 12 percent, and -9 percent,
respectively. What is the standard deviation of these returns?
A. 23.20 percent
B. 35.46 percent
C. 17.88 percent
D. 32.03 percent
E. 28.39 percent
The R in the Fisher effect formula represents the:
A. current yield.
B. real return.
C. coupon rate.
D. inflation rate.
E. nominal return.
Net working capital decreases when:
A. a new 3-year loan is obtained with the proceeds used to purchase inventory.
B. a credit customer pays his or her bill in full.
C. depreciation increases.
D. a long-term debt is used to finance a fixed asset purchase.
E. a dividend is paid to current shareholders.
Lexington Stables just declared a 15 percent stock dividend. Which one of the
following increased by 15 percent as a result of this dividend?
A. Book value of firm’s equity
B. Shareholders’ wealth
C. Number of shares outstanding
D. Firm’s cash balance
E. Stock price
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of
$19,300, and owners’ equity of $21,100. What is the value of the net working capital?
A. $9,800
B. $10,400
C. $18,900
D. $21,300
E. $23,200
Good Guys will pay you $2,500 a year for 10 years in exchange for $31,300 today.
What interest rate will you earn on this annuity?
A. 1.67 percent
B. 3.89 percent
C. 5.50 percent
D. 2.55 percent
E. 2.38 percent
You want to buy a new sports car from Roy’s Cars for $51,800. The contract is in the
form of a 48-month annuity due at an APR of7.8 percent, compounded monthly. What
would be your monthly payment?
A. $1,251.60
B. $1,109.29
C. $1,245.70
D. $1,152.98
E. $1,084.32
Which of these are money market securities?
I. Jumbo CDs
II. Short-term municipal debt
III. U.S. Treasury bills
IV. Commercial paper
A. I and IV only
B. II and III only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV
A registration of securities under SEC 415 which permits a firm to issue the securities
over a two-year period is which type of registration?
A. Seasoned registration
B. Negotiated registration
C. Shelf registration
D. Extended registration
E. Delayed registration
To ensure an unsecured line of credit is used solely for short-term purposes, the loan
arrangement frequently includes which one of the following?
A. Cleanup period
B. Grace period
C. Revolver
D. Factoring arrangement
E. Lien on the borrower’s inventory
The Piano Movers can borrow at 7.8 percent. The firm currently has no debt, and the
cost of equity is 15 percent. The current value of the firm is $680,000. What will the
value be if the firm borrows $140,000 and uses the proceeds to repurchase shares? The
corporate tax rate is 35 percent.
A. $820,000
B. $540,000
C. $750,000
D. $571,000
E. $729,000
QT Stores has an average collection period of 28 days and factors all of its receivables
immediately at a discount of 1.12 percent. What is the firm’s effective cost of borrowing
assuming all accounts are collected in full?
A. 16.28 percent
B. 15.81 percent
C. 15.57 percent
D. 16.33 percent
E. 15.88 percent
You are considering the following two mutually exclusive projects. The crossover point
is _____ and Project _____ should be accepted if the discount rate is 14 percent.
A. 13.28 percent; B
B. 13.28 percent; A
C. 0 percent; B
D. 15.96 percent; A
E. 15.96 percent; B
Companies can list their stock on which one of the following without having to meet
listing requirements or filing financial statements with the SEC?
A. NASDAQ Capital Market
B. Over-the-Counter Bulletin Board
C. Pink sheets
D. NASDAQ Global Market
E. NYSE
Over the past four years, a stock produced returns of 13 percent, -9 percent, 8 percent,
and 14 percent, respectively. Based on these four years, what range of returns would
you expect to see 99 percent of the time?
A. -25.48 percent to 38.48 percent
B. -22.39 percent to 26.41 percent
C. -32.39 percent to 48.56 percent
D. -18.46 percent to 22.41 percent
E. -18.46 percent to 24.39 percent
The historical record for the period 1926-2014shows that the annual nominal rate of
return on:
A. risk-free securities has averaged around 5 percent.
B. the Consumer Price Index has been positive every year.
C. U.S. Treasury bills have had a positive rate of return for every year in the period.
D. U.S. Treasury bills is constant.
E. large company stocks has averaged around 9 percent.
Ignoring the option to wait:
A. may overestimate the internal rate of return on a project.
B. may underestimate the net present value of a project.
C. ignores the ability of a manager to increase output after a project has been
implemented.
D. is the same as ignoring all strategic options.
E. ignores the value of discontinuing a project early.
Which of these is a shortage cost?
A. Restocking cost
B. Opportunity cost of capital
C. Inventory obsolescence
D. Insurance cost
E. Inventory theft
Based on the capital asset pricing model, which one of the following must increase the
expected return on an individual security, all else held constant?
A. An increase in the risk level of that security as measured by standard deviation
B. An increase in the risk-free rate given a security beta of 1.42
C. A decrease in the market rate of return given a security beta of 1.13
D. A decrease in the market rate of return given a security beta of .78
E. A decrease in the risk-free rate given a security beta of 1.06
AB Builders has 15-year bonds outstanding with a face value of $1,000 and a market
price of $974. The bonds pay interest annually and have a yield to maturity of 4.03
percent. What is the coupon rate?
A. 3.80 percent
B. 4.20 percent
C. 4.25 percent
D. 3.75 percent
E. 3.95 percent
Which one of the following is the risk arising from changes in value caused by political
actions?
A. Exchange rate risk
B. Political risk
C. Translation risk
D. LIBOR risk
E. Cross-rate risk
A firm has inventory of $46,500, accounts payable of $17,400, cash of $1,250, net fixed
assets of $318,650, long-term debt of $109,500, and accounts receivable of $16,600.
What is the common-size percentage of the equity?
A. 70.60 percent
B. 70.12 percent
C. 66.87 percent
D. 42.08 percent
E. 68.75 percent
Suppose a stock had an initial price of $36 per share, paid a dividend of $.42 per share
during the year, and had an ending share price of $34. What was the capital gains yield?
A. 6.72 percent
B. 7.12 percent
C. 3.78 percent
D. -5.56 percent
E. -4.94 percent
Bruce Moneybags owns several restaurants and hotels near a local interstate. One
restaurant, Beef and More, originally cost $1.8 million, is currently fully paid for, but
needs modernized. Bruce is trying to decide whether to accept an offer and sell Beef
and More, as is, for the offer price of $1.1 million or renovate the restaurant himself.
The projected renovation cost is $1.3 million. The restaurant would need to be shut
down completely during the renovation which would cause an aftertax net loss of
$90,000 in today’s dollars. The estimated present value of the cash inflows from the
renovated restaurant is $3.2 million. When analyzing the renovation project, what cost,
if any, should be included for the current restaurant?
A. $0
B. $1.1 million
C. $1.1 million + $90,000
D. $1.8 million + 1.3 million + 90,000
E. $3.2 million -($1.8 million + 1.3 million + 90,000)
A firm has net income of $197,400, a return on assets of 8.4 percent, and a debt-equity
ratio of .72. What is the return on equity?
A. 11.67 percent
B. 18.98 percent
C. 14.45 percent
D. 16.22 percent
E. 15.06 percent
Cornerstone Markets has beginning long-term debt of $64,500, which is the principal
balance of a loan payable to Centre Bank. During the year, the company paid a total of
$16,300 to the bank, including $4,100 of interest. The company also borrowed $11,000.
What is the value of the ending long-term debt?
A. $45,100
B. $53,300
C. $58,200
D. $63,300
E. $85,900
Jeffries, Inc.,has semiannual, 6 percent coupon bonds on the market that currently have
11 years left to maturity. If the market rate of return for this bond is 7.13 percent three
years from now, what will be the bond’s clean price at that time?
A. $925.88
B. $932.00
C. $903.14
D. $921.42
E. $933.33