Which one of the following types of securities has no priority in a bankruptcy
proceeding?
A. Convertible bond
B. Senior debt
C. Common stock
D. Preferred stock
E. Straight bond
The DuPont identity can be totally defined by which one of the following?
A. Return on equity, total asset turnover, and equity multiplier
B. Equity multiplier and return on assets
C. Profit margin and return on equity
D. Total asset turnover, profit margin, and debt-equity ratio
E. Equity multiplier, return on assets, and profit margin
What is the name given to the model that computes the present value of a stock by
dividing next years annual dividend amount by the difference between the discount rate
and the rate of change in the annual dividend amount?
A. Stock pricing model
B. Equity pricing model
C. Capital gain model
D. Dividend growth model
E. Present value model
The Insolvent Insurance Co. will pay you $2,500 a year for 10 years in exchange for
$30,000 today. What interest rate will you earn on this annuity?
A. -3.18 percent
B. 3.18 percent
C. 5.50 percent
D. 5.55 percent
E. 5.60 percent
Which one of the following will decrease the present value of an annuity?
A. Increase in the annuitys future value
B. Increase in the payment amount
C. Increase in the time period
D. Decrease in the discount rate
E. Decrease in the annuity payment
Janis just won a scholarship that will pay her $500 a month, starting today, and
continuing for the next 48 months. Which one of the following terms best describes
these scholarship payments?
A. Ordinary annuity
B. Annuity due
C. Consol
D. Ordinary perpetuity
E. Perpetuity due
Steve is considering investing $3,600 a year for 40 years. How much will this
investment be worth at the end of the 40 years if he earns an average annual rate of
return of 11.6 percent? Assume Steve invests his first payment of the end of this year.
A. $1,887,411.26
B. $1,919,200.08
C. $2,103,018.90
D. $2,311,416.67
E. $2,471,685.70
First Trust offers personal loans at 7.7 percent compounded monthly. Second Bank
offers similar loans at 7.75 percent compounded semiannually. Which one of the
following statements is correct concerning these loans?
A. The First Trust loan has an effective rate of 7.98 percent.
B. The Second Bank loan has an effective rate of 8.03 percent.
C. The annual percentage rate for the Second Bank loans is 7.90 percent.
D. Borrowers should prefer the loans offered by Second Bank.
E. First Trust offers the best deal on loans.
Over the past four years, a stock produced returns of 23 percent, -39 percent, 4 percent,
and 16 percent, respectively. Based on these four years, what range of returns would
you expect to see 99 percent of the time?
A. -82.39 percent to 84.39 percent
B. -82.39 percent to 86.41 percent
C. -82.39 percent to 88.56 percent
D. -78.46 percent to 86.41 percent
E. -78.46 percent to 84.39 percent
Denbos, Inc. has total equity of $389,600, long-term debt of $116,400, net working
capital of $1,600, and total assets of $627,600. What is the total debt ratio?
A. 0.19
B. 0.38
C. 0.67
D. 1.49
E. 3.85
Zero coupon bonds:
A. are valued using simple interest.
B. are issued only by the U.S. Treasury.
C. create a tax deduction for the issuer only at maturity.
D. are issued at a premium.
E. create annual taxable income to individual bondholders.
On June 22, Roys Welding Shop purchased $3,300 worth of goods. The terms of the
sale were 1/7, net 21. What is the effective annual rate of interest for the credit period
for this sale?
A. 29.96 percent
B. 31.38 percent
C. 34.42 percent
D. 37.73 percent
E. 38.63 percent
Which one of the following is a working capital decision?
A. How should the firm raise additional capital to fund its expansion?
B. What debt-equity ratio is best suited to the firm?
C. What is the cost of debt financing?
D. Which type of debt is best suited to finance the inventory?
E. How much cash should the firm keep in reserve?
Eric has $4,800 that he wants to invest for 4 years. He can invest this amount at his
credit union and earn 4 percent simple interest. Or, he can open an account at Compass
Bank and earn 3.65 percent interest, compounded annually. If he decides to invest at
Copmpass Bank for 3 years, he will:
A. earn $15.02 more than if he had invested with his credit union.
B. earn $27.89 less than if he had invested with his credit union.
C. earn the same amount as if he had invested with the credit union.
D. have a total balance of $4,992 in his account after one year.
E. have a total balance of $4,876 in his account after one year.
A flexible short-term financial policy will tend to have more of which of the following
than a restrictive short-term financial policy will?I. uncollectable accounts receivableII.
work stoppages for lack of raw materialsIII. carrying costsIV. obsolete or out-of-date
inventory
A. I and II only
B. III and IV only
C. II and III only
D. I, II, and III only
E. I, III, and IV only
Services United is considering a new project that requires an initial cash investment of
$78,000. The project will generate cash inflows of $29,500, $32,700, $18,500, and
$10,000 over each of the next four years, respectively. How long will it take to recover
the initial investment?
A. 2.74 years
B. 2.85 years
C. 2.99 years
D. 3.27 years
E. 3.68 years
Which one of the following statements is correct?
A. The net present value is a measure of profits expressed in todays dollars.
B. The net present value is positive when the required return exceeds the internal rate of
return.
C. If the initial cost of a project is increased, the net present value of that project will
also increase.
D. If the internal rate of return equals the required return, the net present value will
equal zero.
E. Net present value is equal to an investments cash inflows discounted to todays
dollars.
The price at which an investor can purchase a bond from a dealer is called the _____
price.
A. asked
B. coupon
C. call
D. face
E. bid